The gap many directors do not notice
If you left a large employer to run your own company, you may have left behind death in service, generous sick pay and possibly group income protection. Many directors only notice the gap when a friend falls ill or a lender asks what cover is in place.
The good news is that your company can now pay for most of what an employer would have provided. Because the company pays, you avoid funding premiums from income that has already been taxed, subject to the rules for each type of policy. Each policy has its own rules, so it helps to look at them together before you buy anything.
Cover for you and your family
Relevant life cover is life insurance owned and paid for by the company, with the payout going to your family through a trust. Executive income protection pays the company a monthly benefit if you cannot work, so it can keep paying your salary.
Both are designed for directors who are employees of their company. They sit well alongside a personal policy you own yourself, which stays with you if you sell the business or move on. If you are the only director, relevant life cover and executive income protection often make up the core of your protection.
Cover for the business and your co-owners
If the company relies on you to win work or run operations, key person cover gives it a lump sum to steady things if you die or fall seriously ill. If you own shares alongside others, shareholder protection and a cross-option agreement let them buy your shares, so your family receives their value in cash.
Where you have signed a personal guarantee or lent the company money, loan protection can stop that debt landing on your family or straining the company at the wrong moment.
- Relevant life cover: life insurance for your family, paid by the company
- Executive income protection: your salary during illness
- Key person cover: protects company profits
- Shareholder protection: funds a sale of your shares
- Loan protection: clears guarantees and director's loans
How the way you are paid affects cover
Many directors pay themselves a modest salary and top it up with dividends. That matters for protection. Some insurers count dividends when setting income protection limits and others do not, and the amount of life cover an insurer will accept is usually linked to what you draw from the company.
Tell us how your pay is made up when you enquire. It helps us focus on insurers whose rules suit you, and it avoids setting income protection at a level an insurer would scale back when you claim.
How Hi Tomorrow helps directors build the right mix
Few directors need everything. We start by asking what worries you most, what you already hold and how the company is owned and financed. From there we suggest a short list of policies in a sensible order, so the most important cover goes in first.
We compare the insurers on our panel, help with applications and set up the trusts. We are happy to explain how each policy is set up to your accountant, who should confirm the tax treatment for your company. As the business changes, we can review the cover with you.