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Business has changed over the years - that’s why we’re refreshing business protection to fit today’s small and medium sized enterprises.

Free business legal advice and tax guidance for your business protection clients

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Business Protection

How to write business protection in trust

How you write business protection depends on:

  • What the cover is for (to protect profits, pay off debt, safeguard ownership or Relevant Life Cover).
  • The set up of the business (limited companies, limited liability partnerships, partnerships and sole traders).
  • And who the claim would be paid to.

Relevant Life Cover

Relevant Life Cover is a tax-efficient life insurance policy, allowing companies to offer death-in-service benefits to their staff. It must be written in trust and the employer is automatically a trustee. Up to four additional trustees can be named – one of these can be the employee. The employee will select their beneficiaries (usually their family or next of kin).

You can use our Relevant Life Cover discretionary trust deed when writing LV= Relevant Life Cover.

Key Person Cover

Key Person Cover provides a financial safety net if a key member of staff dies or is diagnosed with a serious illness (if Critical Illness cover is also selected). The claim is paid directly to the company or partners, allowing breathing space to help keep the business trading as normally as possible.

The following table outlines when a trust is needed for Key Person Cover.

Limited company

Limited liability partnership

Partnership

Sole trader

No trust needed, as the business ‘owns’ the policy and will be paid the claim

If the key person is an employee, the policy is taken out by one (or all) of the business owners. The policy is written in trust, and the business owners named as the beneficiaries.

If the key person is a business owner, each partner takes out a policy on their own life, which is written in trust. The remaining business owners are named as the beneficiaries.

If the key person is an employee, no trust is needed, as the sole trader ‘owns’ the policy and will be paid the claim.

If the key person is the business owner, the policy is written in trust, and the sole trader’s next of kin named as the beneficiaries.

Share and Partnership Protection

Share Protection has been designed for limited companies, and Partnership Protection is the cover recommended to partnerships and limited liability partnerships. To set up both types of cover, each business owner takes out a life insurance policy (that can include critical illness cover) on their own lives, written in trust. The beneficiaries are the other business owners, who should also be the trustees.

Smaller businesses with just two owners can set up policies under a life-of-another arrangement, without the need of a trust. However, writing business protection in this way doesn’t allow for flexibility if the business changes ownership in the future.


Trust deed forms

Cross option agreements

A cross option agreement (sometimes called a ‘double option agreement’) is a legally binding contract between each business owner which outlines what would happen to the shares if one of them dies (or takes early retirement due to ill health).

In business protection, the cross option agreement gives the surviving business owners the option to buy the deceased owner’s shares, and the estate the option to sell them. This process helps ensure business continuity (the business carries on trading with minimal disruption). A cross option agreement should be set up at the same time as Share or Partnership Protection

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Business Protection Specialist Team

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Business Protection options

Find out more about the type of businesses we cover and the policies available.

More about our Business Protection options

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See all our business protection calculators available to simplify your client conversations.

Our Business Protection calculators

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Our Business Protection includes valuable telephone support for your clients and their employees.

LV= Business Care

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FOR UK FINANCIAL ADVISERS ONLY
LV=, County Gates, Bournemouth, BH1 2NF, UK