I am a landscape gardener working as a sole trader. I have no employees but rent a small piece of land with a polytunnel and portacabin, and have a number of pieces of equipment that I have bought with loans to the business. I have personal life insurance but I do wonder if I should take out some other type of business insurance to cover the rent and loan repayments if I were to be unable to work for a period. Will insurers provide a policy for a sole trader business?
The issue here is that as a sole trader there is no distinction between you and your business, so cover in the event of you being unable to work needs to be written on a personal basis.
There are two types of cover that might supplement your life insurance: critical illness protection and income protection. Either type of cover could assist with rent and loan repayments if you were unable to work for a period.
Critical illness would provide a lump sum payment in the event that you were to suffer a serious illness such as a heart attack, cancer or stroke. I would suggest that you talk to an independent financial adviser who would be able to advise you on this as there are a wide range of plans available and varying conditions that are covered.
Income protection insurance would provide a tax-free income in the event that you were unable to work after a period of time, for any illness or injury.
If a lender needs any protection plan to be assigned to them, the plan should not be written in trust. However, if assignment is not required, the plan should be written in trust so that your family/beneficiaries could benefit from the life cover to meet the financial obligations of the business. If critical illness is included in your plan this could be written under a split trust so that the critical illness cover is paid to you and the life cover element to your beneficiaries/family. It is possible to add a trust to an existing plan.
Tax relief is not available on the premiums where you are a sole trader as there is a personal benefit to you or your family. If the business pays the premiums on such a plan, this is normally treated as drawings from the business.
Do get independent advice about what sort of cover will work best for your circumstances.
This is a marketing communication. Any opinions expressed in this article do not constitute advice.