Why take out Loan Protection
Some lenders may require you to have life insurance when you take out the loan. However, even if this is not the case it is worth taking out protection insurance alongside your loan. You may think that you have enough savings or investments in case something happens but if a key person in the business dies you will need money to recruit and train a replacement and make up for lost business as well as other expenses.
Other factors to consider are:
- Will the remaining owners be able to pay the loan on the death of a key person?
- Were personal guarantees given for the loan?
- Did the director or business owner use their home as security for the loan?
- Loss of goodwill
Loan Protection Cover Options
The most comprehensive policies are those that cover both life and critical illness.
Life Insurance Only
A lump sum payment should the key person pass away or become terminally ill during the term of the cover.
Life and Critical Illness Cover
A lump sum payment should the key person either pass away, become terminally ill or suffer one of a defined list of critical illnesses during the term of the cover.
The taxation implications for a company depend on the solution, the type of plan chosen, the reason for the cover and the relationship between the key person and the company. However, HM Revenue and Customs will treat each case on its own merits and may take a different approach to that outlined below. Contact the firm's local inspector of taxes to find out the approach they will take. You can find a draft letter to HM Revenue and Customs.
Take Our Advice
With years of experience there's nothing we don't know about business protection, talk to us and we can give you sound advice on what type of cover is best for your business and how much.
Simply call 0800 583 7288 or submit an enquiry