I am the MD of a small limited company and we’ve really struggled during 2020 with the pandemic – it’s had a huge impact on our sales figures.  We are hoping that 2021 will be much better, but want to give ourselves a bit of a cushion to fall back on if we encounter some other kind of business interruption in the future.  Can you advise what sort of business insurance cover we might adopt, other than the usual premises, vehicles and equipment cover?

Carl Lamb of Smith & Pinching Responds

It always surprises me how few small business owners have insurance policies in place to protect their business if something should happen – illness, injury or even death – to one of the people on whom the success of the business relies.  It is known as Key Person insurance and can be taken out to protect against the loss to the business if any named individual were to become unable to work due to one of the critical illnesses specified in the policy – or if he or she were to die.  This doesn’t have to be the business owner or directors but could equally be someone with critical knowledge or contacts.  Key Person insurance generally pays out a lump sum to allow the business a breathing space to replace the lost resource, meet any additional costs while the person covered is off work or to cover lost profits.  In addition, the policy can be set up to include protection for the repayment of business loans.

Other forms of cover that might be suitable for you include (for a limited company) shareholder protection which, in conjunction with an appropriate shareholder agreement, would allow surviving shareholders to purchase shares from the estate of a shareholder who dies.  It might also be worth looking at a corporate life policy, income protection and critical illness cover for specific staff members.  These types of policy can be tax-efficient for the individual and the company:  the company pays the premiums which may be allowable as business expenses, reducing the company’s Corporation Tax bill.

I think it would be worth you sitting down with an independent financial adviser to review the vulnerabilities within your business and evaluating the benefit of different types of cover.  As with all insurances, there is a balance between the cost of premiums and the benefits provided.  An independent adviser will help you achieve the right mix for your business.

Any opinions expressed in this article do not constitute advice.