He says: "From director's loans to inject cash into a start-up to large corporate finance or commercial mortgage debt, business loan protection can be there to repay the loan, should a key person responsible for the loan or for generating profit to repay the loan fall ill or die."
Relevant life cover
This is another type of tax-efficient insurance policy, which allows a firm to offer a death-in-service benefit to staff, including salaried directors.
It is not available to sole traders or partners, as it is an employee benefit.
Typically it is set up by the company and pays out a tax-free lump sum on death or the diagnosis of a terminal illness of the person insured, and the proceeds go through a trust to the family or the employee or any financial dependants.
In a nutshell, this counts as a tax-deductible business expense, and businesses can choose whether to have a one-off payment, or annual, quarterly or even monthly payments.
Premiums are guaranteed and the benefits are usually free from inheritance tax - although, of course, with taxation it always pays to seek specialist tax advice.
Instances where relevant life cover may be right:
- Businesses too small for a group life scheme.
- High-earning staff who might exceed their personal pension lifetime allowance, as registered group life schemes are included in pensions legislation, which means any paid claim is included in the employee's pension fund. Claims under relevant life cover do not count towards a person's lifetime allowance.
- Members of group life schemes who want to top up their benefits.
Mr Timpson says if relevant life cover is the right recommendation, advisers should make sure that it is written into a discretionary trust.
He also warns: "There is no cash value at any time, and if the client stops paying the premiums, the related cover may end."
With relevant life cover, the person covered must be a UK resident, and an employee of a UK business and the cover stops at 75 - which means keeping an eye on key staff, many of whom might want to continue working as long as possible.
Director protection
There is also a valid argument for insuring the directors of a company, especially if they have very different roles or they are shareholders in the firm.
Often this is not something a business owner may consider. Director protection is also important - how will the fellow directors buy out the shares of a dead or critically ill fellow director?
Do they want his widow as a shareholding director, entitled to dividends/salary yet not putting anything into the business?
In this instance, each director insures the other so that he/she is able to purchase the leaving director's shareholding.
This is usually done in tandem with a double option agreement whereby the widow has to sell her shares and the other directors have to buy them.
