By Matthew Horan CeMAP · Protection
Quick answer: If you own or run a business, your income and your mortgage often depend on it, and the business often depends on you. Business protection, such as key person cover, director's life insurance and shareholder protection, is designed to help the business and the people behind it if an owner or key employee dies or becomes seriously ill. It sits alongside your personal protection, not instead of it. Clarity Mortgages & Protection in Altrincham gives fee-free advice on mortgages and protection together, with no obligation.
When you're self-employed or a company director, it's easy to focus on the business and put your own protection to one side. But for many owners, the business and the household are tied together. If something happened to you, or a key person, both could be affected.
Here's a plain-English look at the main types of business protection, and how they connect to your personal finances and your mortgage.
Why it matters for business owners
Your mortgage may rely on the business. If you're paid through salary and dividends or drawings, your ability to pay the mortgage depends on the business doing well. Our post on re-mortgaging when you're self-employed explains how lenders look at that income.
There's often no employer safety net. There may be no sick pay scheme or death-in-service benefit behind you.
The business may depend on one or two people. Losing them could affect profits, contracts or lending.
Business owners often have personal guarantees. Some business loans or leases are personally guaranteed, which can put your home at risk.
The main types of business protection
Key person cover
Key person cover insures someone whose skills, knowledge or relationships are vital to the business. It's usually owned and paid for by the business. If that person dies or is seriously ill, the policy pays the business a sum that can help with lost profits, recruitment costs or other pressures.
Might suit: a business where one or two people bring in most of the work, or hold the key client relationships.
Director's life insurance (relevant life)
This is a life insurance policy for a director or employee, set up and paid for by the company, with the benefit paid to the person's family. It's often called a relevant life policy. The way it's taxed depends on individual and company circumstances, so you should take tax advice.
Might suit: limited company directors who want life cover through the business, rather than paying personally.
Shareholder or partnership protection
If one owner dies or becomes seriously ill, their share of the business usually passes to their family, who may not want to run it. Shareholder protection provides funds so the remaining owners can buy the share, and the family receives the value. Without it, the other owners may struggle to afford a buyout.
Might suit: businesses with more than one owner or partner.
Business loan protection
This cover can help repay a business loan or overdraft if the person responsible dies or is seriously ill. It's relevant if you've borrowed, particularly where a personal guarantee is involved.
Might suit: owners with significant borrowing in the business.
Your personal protection still matters
Business protection looks after the business. Your personal cover looks after you and your family, and your mortgage. A few things to consider:
Life insurance can help your family keep the home if you die.
Critical illness cover can provide a lump sum if you're seriously ill. See Critical illness cover explained.
Income protection can replace part of your income if you can't work. See Income protection and your mortgage.
For the whole picture, read Life insurance, critical illness or income protection: which one protects your mortgage?
How we look at it together
We start with your mortgage and personal circumstances, then look at the business. That means we can:
Match personal cover to your mortgage, your family and your income
Look at whether business protection makes sense, and who should own and pay for it
Compare cover from a range of insurers
Work alongside your accountant or solicitor on tax and legal points
Review everything when the business or your mortgage changes
Questions to ask yourself
If I couldn't work, how would the mortgage be paid?
Who would run the business, and could it survive without me?
If a co-owner died, what would happen to their share?
Have I given any personal guarantees?
Is my cover owned in the right way for tax and legal purposes?
Frequently asked questions
What is key person insurance?
It's cover held by a business on a person who's vital to it. If that person dies or is seriously ill, the policy pays the business to help it through the loss.
What is director's life insurance?
It's a life insurance policy set up and paid for by a company for a director or employee, with the benefit going to their family. The tax treatment depends on the circumstances.
Do I need business protection if I'm a sole trader?
It depends. Sole traders usually need personal cover first, and may also consider cover for any business borrowing or key contracts. We'll talk through what's relevant.
Can the company pay for my protection?
In some cases, yes, for example through relevant life cover or key person cover. Whether it makes sense, and how it's taxed, depends on your circumstances, so it's worth taking tax advice.
Does business protection replace my personal cover?
No. They do different jobs. Business protection supports the business, and personal cover supports you and your family.
Does it cost anything to speak to you?
No. We don't charge a fee for our advice. We're paid by the provider if you go ahead.
If you run a business and want to know how well your mortgage and income are protected, get in touch. It's fee-free with no obligation. We help clients across Altrincham, Trafford and Cheshire.
About the author
Matthew Horan CeMAP is Principal of Clarity Mortgages and Protection, an independent, fee-free mortgage and protection broker based in Altrincham. He has over 10 years' experience helping individuals, families and business owners with mortgages and protection, and writes in plain English because most people aren't given the chance to understand what they're signing.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.
This article is general information, not advice. What's right for you depends on your own circumstances. Protection policies may not pay out in all circumstances and have exclusions and limitations, so check the policy terms. Most protection policies have no cash-in value if you stop paying or the term ends. Tax treatment depends on individual circumstances and may change. We don't give tax or legal advice, so speak to your accountant or solicitor. Trusts are not regulated by the FCA.
