Starting a new business is exciting but also comes with risks.
Many owners focus on building their product or service, securing clients, and managing cash flow. But one area often overlooked is protecting the business against unexpected events, such as the death or serious illness of a key person.
Life insurance for businesses is designed to provide this protection. For new businesses, it can offer peace of mind, financial stability, and reassurance to lenders and investors.
What is business life insurance?
Business life insurance is cover taken out by a company to protect against the financial impact of losing an owner, director, or key employee. If the insured person dies or is diagnosed with a critical illness, the policy pays out to the business or to nominated beneficiaries, depending on the type of cover.
There are several forms of business life insurance, each serving a different purpose. Understanding these can help new business owners choose the right protection.
Types of business life insurance for new businesses
Key person insurance
Key person insurance provides a payout to the company if a key employee or director dies or becomes critically ill. For new businesses, this is particularly important because success often relies on one or two individuals. The funds can be used to cover lost income, recruit a replacement, or maintain client confidence.
Relevant life insurance
Relevant life insurance is a tax-efficient policy that allows companies to provide life cover for directors or employees. It is written in trust, so the payout goes directly to the individual’s beneficiaries rather than the business. For start-ups, it can be a cost-effective way of offering protection to founders and early employees.
Business loan protection
New businesses often take out loans to fund growth. Business loan protection ensures that if an owner or guarantor dies, the payout can be used to repay outstanding debts. This prevents the burden falling on surviving directors, shareholders, or family members.
Group life insurance
For new businesses beginning to build a team, group life insurance can be offered as an employee benefit. It provides cover for staff members, with payouts going to their families. Offering this benefit can help attract and retain talent in the early stages of growth.
Why new businesses should consider life insurance
Protecting continuity
In the early years, a business is often dependent on a few key people. Losing one of them could cause disruption or even closure. Life insurance helps ensure continuity by providing funds to manage the transition.
Reassuring lenders and investors
Banks and investors want to see that risks are managed. Having life insurance in place shows that the business has considered its responsibilities and planned for unexpected events. This can make it easier to secure funding.
Protecting personal finances
Without cover, debts or financial obligations linked to the business could fall on surviving partners or family members. Business life insurance helps prevent this and keeps personal and business finances separate.
Example in practice
Imagine a new technology company founded by two directors. One director passes away unexpectedly, leaving the other to manage clients, staff, and investors alone. With key person insurance in place, the payout provides funds to hire experienced support and maintain cash flow, giving the business time to recover. Without this, the company could quickly face financial difficulties.
Conclusion
For new businesses, life insurance is not just about protecting people but also about protecting the future of the company. Whether it is covering loans, protecting key staff, or supporting employees, these policies provide valuable security at a time when businesses are most vulnerable.
Speaking to an IGotCover specialist can help you find the best way to protect your business. Click the link below and fill in the form for a specialist to get in contact with you.
