Benefits that disappear on your last day
Your employer may have provided death in service, sick pay, group income protection or private medical cover. All of these usually stop when you hand back your pass. Many new business owners only notice once they need them.
Make a list of what you have now. Then decide what your family would need replacing if you died or fell ill in the first few years of the business.
If your partner relies on your salary, think about how long your business might take to pay you a similar amount. Those early years are when your family is most exposed if something happened to you.
Personal guarantees and start-up debts
Banks and lenders often ask new business owners for a personal guarantee. If the business could not repay and you died, your estate could be liable. Your family might lose savings or even the home.
Life cover sized to the guarantee, written in trust, can give your family money to settle it. Business loan protection is another route once the business is established.
Keep a list of every guarantee you sign and review it each year. As loans are repaid or new ones are taken, your cover may need to change.
Timing income protection
Insurers base income protection on earnings. If you apply while still employed, they use your salary. Once you are self-employed, many want a year or more of accounts or tax returns, and new businesses often show low profits early on.
If you can, arrange cover before you leave. Tell the insurer about your plans if they ask. Some policies have rules about changing occupation, so check them.
Critical illness cover is another option while income protection is hard to arrange. It pays a lump sum on diagnosis of a listed illness and does not depend on your income, so you can buy it whatever your trading history.
- Apply while employed if you can
- Tell the insurer if your job is about to change
- Plan for low profits in the first year or two
- Review cover once you have full accounts
Business cover for later
As the business grows, you may take on partners, staff or investors. Key person cover, shareholder protection or relevant life cover could then make sense. Relevant life cover lets a limited company pay for a director's life cover.
For now, focus on protecting yourself and your family, then build business cover as the company matures.
If you go into business with partners, talk early about what would happen if one of you died. A shareholder or partnership agreement backed by cover can help the survivors buy out the share and keep running the business.
How Hi Tomorrow helps new business owners
We look at the workplace cover you are giving up, any guarantees you have signed and your family's needs. Then we recommend personal cover from our panel and plan when to add business protection.
We can work with your accountant once your company is set up.