Most of the directors and business owners we work with have thought carefully about their mortgage, their pension and their personal life cover. Far fewer have given the same thought to what happens to the business itself if they, or a co-founder, were suddenly not there tomorrow.
It’s an uncomfortable question to sit with, which is exactly why it tends to get pushed to later. But for anyone whose income, and often a large part of their family’s financial security, runs through a company they own or co-own, it’s one of the more consequential gaps to leave open. Business protection exists to close that gap, and it deserves the same level of attention as the mortgage or pension planning most owners have already sorted.
A scenario worth sitting with
Picture two co-founders who built a business together over a decade. One of them becomes seriously ill and can no longer work. There is no key person cover in place, so the business has no cash injection to cover the gap while a replacement is found or to simply buy time.
If there was a shareholder agreement at all, it likely has no funding mechanism attached to it. That means the healthy co-founder cannot easily buy out the ill partner’s shares, and the ill partner’s family cannot easily realise the value tied up in a business they may have relied on for years. What should have been a difficult but manageable situation turns into a prolonged, often adversarial one, arriving at precisely the moment when everyone involved has the least capacity to deal with it.
The main forms business protection takes
Key person insurance pays out to the business if someone critical to its performance dies or is diagnosed with a serious illness. The payout gives the company funds to cover lost profit, the cost of recruiting a replacement, or simply a temporary shortfall while things stabilise.
Shareholder or partnership protection works differently. It funds an agreed buyout of a departing owner’s share of the business, so the remaining owners are not left trying to raise capital at the worst possible moment, and the departing owner or their family receives fair value without a drawn-out dispute.
Relevant life plans serve a narrower but useful purpose. They allow a company to provide life cover for a director or employee in a tax efficient way, and are often more cost effective than a personal policy paid for out of already-taxed income. The exact tax treatment depends on individual circumstances and current HMRC rules, so this is always worth confirming with an adviser before assuming a particular outcome.
How the cover actually needs to be structured
Arranging a policy is only half the job. Whether it’s written into trust, how the premiums are treated for tax purposes, and how the whole arrangement sits alongside an existing shareholder agreement all affect whether the cover does what everyone assumes it will do when the time actually comes.
Trust structuring matters more than most owners expect. A key person or shareholder protection policy written outside of trust can end up delayed by probate or taxed in ways nobody intended, precisely when speed and certainty matter most. Getting this right at the outset, rather than discovering the gap after a claim, is where a lot of the real value in this kind of planning sits.
We regularly see policies that were arranged correctly at the time but have never been reviewed against a shareholder agreement that has since changed, or against a business that has grown well beyond the valuation the cover was originally based on. A policy sized for a business worth £2 million five years ago is unlikely to still be adequate if that business is now worth three or four times as much, yet nobody had a reason to revisit it in the meantime.
How London FS fits in
Business protection sits within our Protection service line, alongside personal protection, global life insurance, and wills, estate planning and probate. Because we already work with many of our clients on mortgage and wealth structuring, we’re often well placed to have this conversation at the same time, rather than treating it as a separate task that has to compete for attention with everything else running a business demands. If you run your own company and haven’t reviewed your business protection in the last couple of years, or have never put anything in place at all, it’s worth a conversation. Get in touch with our team to talk through what would actually apply to your situation.
