However, he also stated individuals should consider other policies, for example a relevant life plan, if they are eligible, and benefit from the tax benefits which can help reduce the cost to the business.
For many clients, income protection policies alone will not cover the risks to the business, especially if they have other members of staff.
“Income protection and business protection cover two different risks – comparing the two is like comparing apples and pears,” exclaims Tom Conner, director of insurance for Drewberry.
“Business protection is about the survival of the firm should the worst happen, while IP kicks in to help keep up with your daily living expenses if you as an individual cannot work due to illness,” he says.
That said, one might not need IP if they have key person insurance (KPI) in place, as this is about “ensuring a continuation of profits”, Mr Conner adds.
“This could theoretically allow for the individual to continue drawing down an income from the business/the KPI payout, if they become critically ill.”
Education
While some may think protection is costly or unnecessary, there are those business owners who might not even have considered getting cover, let alone calculated whether it is too expensive for them.
As Emma Thomson, life office relationship manager for Lifesearch, comments: “Most people do not know what they need to buy, which is why getting advice is so important.
“We introduce the concept of income protection to our clients, who typically get personal income protection, unless they have a limited structure, which allows them to get executive income protection.”
Getting good advice is always essential – and it would pay for advisers to carry out a thorough check of new clients’ business protection policies to see whether there are any personal or corporate protection gaps that need to be filled.
Taxation
When considering potential costs, it is worth also discussing taxation of healthcare or insurance benefits with potential and existing clients, or passing them to a qualified tax adviser for specialist cases.
Some cover will be classed as a taxable benefit under HM Revenue & Customs, but not all policies will be. Others will qualify for tax relief, and some may not. This also applies to individual plan types: some key person assurance may qualify, and some may not - it all depends on individual circumstances.
Perhaps unhelpfully, there is currently direct legislation covering the taxation of key person policies, but the principles applying were set out in 1944 by the then Chancellor of the Exchequer, Sir John Anderson and are still used as guidelines today.
Full details on the HMRC rules for business income can be found online.
