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Business Protection

This type of cover is designed to protect the death or serious illness of a “key” person which could lead to financial loss for the Company in a number of ways:

  • Bank loans may be called in even if the deceased had given a personal guarantee
  • There might be a withdrawal (or reduction) of credit facilities
  • Repayment to the deceased’s estate of loans made to the Company by the individual
  • The loss of business contacts
  • The loss of management experience
  • The cost of replacement of a suitable replacement

The solution is a business protection policy which is meant to replace anticipate loss of profits and/or loans which could become payable on the death or serious illness of the individual. It should be noted that this type of protection is not geared to generate a windfall but purely to protect against unforeseen financial pressures or interventions by third parties which could have an undesired if not detrimental effect on the business.

In quantifying the cover, the amount of loans and/or loss of profits should be considered. In order to affect the cover, a Board resolution is required to affect the cover and the Company then proposes for the life of the “keyperson”. It should be noted that the Company underwriting the cover may require a Financial Questionnaire to be completed to satisfy underwriting. Typically where over €1,300,000 is being proposed, two years accounts will be required.

There are a number of points which should be noted from a taxation point of view here:

  • If the sole purpose of the policy is to repay a company loan or the individual covered is a substantial shareholder in the Company, then the premiums are not generally deductible for corporation tax purposes.
  • As a general rule, if the premiums do not qualify as an expense deduction for Corporation Tax purpose, then the proceeds on death are treated as a ‘capital’ receipt and would not in such circumstances be liable to Corporation Tax.
  • If the premiums have been deducted as an expense for Corporation Tax purpose, then the proceeds on death are treated as a trading receipt and would in such circumstances be liable to Corporation Tax as a profit received by the company in respect of its trading activities

Note

Eligible illnesses and exclusions will be listed in your individual policy and will vary between providers. Your age, gender, health and family medical history will affect your eligibility and the cost.


 

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