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Long-term planning amidst short-term turmoil - news article image

Long-term planning amidst short-term turmoil

23 Feb 2021

4 minute read

This last year has shone not so much a light as a bank of concert quality lighting on a couple of areas which are, if not ignored, then often underplayed, namely illness and death. 

Never before have so many person-hours been spent trawling through statistics on infection rates, hospitalisations, mortality rates and long-term impacts of illness.

From a business perspective, most, if not all, businesses have had to look at what they do and how they do it and make often radical changes to one or the other. Commonly as business owners we find it can be difficult to take sufficient time out of working in the business to spend time working on the business. However, the impact of the pandemic and the various and seemingly ever-changing restrictions have forced us to do exactly that. 

These two things come together in the general area of Business Continuity, but as a business owner it is also worth considering whether there are more things that your business could be doing for you personally. 

Business Continuity

Presuming that this hasn’t been made a non-issue by Covid, one thing which may have become clearer over the last year is who is key to your business surviving. This may be you or it may be someone else within the firm, someone with particular knowledge, skills or contacts. 

If that person isn’t you, then you need to ask yourself if you know what the cost to your business would be if you lost that person. Could you find a replacement for them? How long would it take to do so? Would you lose orders or clients? If they are important and you can quantify that importance then you can insure that importance and move that business risk from your shoulders to someone else’s. Keyperson Life Cover, Critical Illness and Income Protection aim to shift the financial burden of that risk from you to the insurer so you can focus on keeping the business going. 

If that person is you then the question starts with what would you like to happen to the business and what would you want to happen for your family. 

If you are in business with others then your first priority is a Shareholder or Partnership Agreement and then making sure that there will be funds available to pay out on that in the event of death or critical illness and allow the business to survive. In the event of non-critical long term illness, you also need to make sure that you are properly covered as well as the business and this is where Executive Income Protection comes in, complimenting that Life assurance and Critical Illness. 

For those who are in business on their own then Personal Life Cover, Critical Illness and Income Protection is not necessarily about what can be done for the business as what needs to be done for you and those who depend on you. It’s about thinking further than having the mortgage cleared and about how to ensure that you and those important to you are looked after properly. 

When is a Life Policy Relevant? 

One other thing worth considering, where you are an employee or Director of your firm, is the benefit of a Relevant Life Policy (RLP), either as part of the Business Continuity Planning or as a potentially more tax efficient alternative to existing personal life cover. 

An RLP is an individual life policy, taken out by an employer for the benefit of an employee or Director, where the premium is paid by the company and the benefit pays to the family of the employee or Director. Although the company gets Corporation Tax on the premiums, the individual doesn’t pay tax on this as a company benefit and the proceeds of the policy are also tax free. 

So, if you are paying for personal life assurance from salary or dividends which have been subject to income tax and either National Insurance or Corporation Tax relief, it can be significantly more efficient to replace this with an RLP. Advice is always needed to ensure that the policy qualifies as an RLP and fits the need that the policy is to cover and you should never cancel any life assurance policy until a replacement is fully in place, but if you haven’t at least asked the question it’s worth doing so.

Long-term planning amidst short-term turmoil - news article image

Author:

Ed Gibson

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