Protecting what matters most
Your ability to earn an income, provide for your family, and run your business are amongst your most valuable assets. Yet they are also amongst the most vulnerable. Illness, injury, and death are not things any of us like to think about, but the financial consequences of being unprepared can be devastating. At Mike Smith IFA, we help individuals, families, and businesses put the right protection in place – so that if the worst were to happen, the financial impact is one less thing to worry about.
Why protection matters
Consider for a moment what would happen to your family or your business if you were no longer able to work, or if you were suddenly no longer here. Would your mortgage still be paid? Would your family be able to maintain their standard of living? Would your business be able to continue without you?
For many people, the honest answer is that they are not sure – and that uncertainty is precisely why protection planning is so important. The right protection strategy ensures that the people and things that matter most to you are financially secure, whatever life may bring.
Term Assurance
Term assurance is one of the most straightforward and cost-effective forms of protection available. It pays a lump sum if you die within a specified period, known as the term, providing financial security for those who depend on you.
| Level term assurance | The sum assured remains fixed throughout the term, making it suitable for interest-only mortgages or providing a fixed lump sum for dependents and young families. |
| Decreasing term assurance | The sum assured reduces over time, typically in line with a repayment mortgage, offering a cost-effective way to ensure your mortgage is covered in the event of your death. |
| Increasing term assurance | The sum assured rises over time, usually in line with inflation, helping to maintain the real value of your cover as the cost of living increases. |
We will assess your individual circumstances and recommend the most appropriate type and level of cover for your needs. We will also consider whether your policy should be placed in trust – a step that can help ensure the proceeds are paid quickly to your chosen beneficiaries and may help reduce a potential inheritance tax liability on your estate.
Critical Illness Cover
A serious diagnosis such as cancer, heart attack, or stroke can have a profound financial impact, even if you are able to make a full recovery. Critical illness cover pays a tax-free lump sum on diagnosis of one of a specified list of conditions, providing financial breathing space at what is likely to be an extremely difficult time.
The money can be used however you choose – to repay your mortgage, adapt your home, fund private medical treatment, or simply replace lost income whilst you focus on your recovery.
The quality of critical illness cover varies significantly between providers. The number of conditions covered, the definitions used to determine whether a claim qualifies, and the additional features included can differ enormously from one policy to another. Choosing the cheapest policy may not be the right approach – what matters most is whether your policy will pay out when you need it to. As an independent firm, we assess the quality of cover across the whole of the market, not just the cost, to ensure your policy will genuinely protect you when it matters most.
Critical illness cover is often arranged alongside term assurance, either as a combined policy or on a standalone basis, and can also be arranged on a joint life basis to cover both you and your partner.
Business Protection
A business can face significant disruption following the death or serious illness of a key individual. Without the right protection in place, the consequences can range from lost revenue and increased costs to disputes over ownership and, in the most serious cases, the failure of the business itself. Business protection insurance is designed to safeguard the financial stability and continuity of your business in these circumstances.
Shareholder Protection
When a shareholder dies or suffers a critical illness, their share of the business may pass to their family – who may have no involvement in or knowledge of the business, yet find themselves with a significant ownership stake. This can create serious difficulties for the remaining shareholders, who may face an unwanted business partner or be unable to raise the funds needed to purchase the shares at short notice.
Shareholder protection provides the remaining shareholders with the funds needed to purchase the deceased’s shares at an agreed value, ensuring they retain control of the business whilst the deceased’s family receives fair financial compensation.
The arrangement typically involves each shareholder taking out a life assurance policy on their own life, written in trust for the remaining shareholders. This is supported by a legal agreement known as a cross-option agreement, which gives both parties the right to buy and sell the shares in the event of a claim. This structure is important not only for practical reasons but also for tax purposes – a properly structured cross-option agreement can help preserve business property relief for inheritance tax, which could otherwise be lost.
We work alongside legal professionals to ensure that both the insurance and the legal documentation are properly structured and legally robust.
Relevant Life Plans
A relevant life plan is a highly tax-efficient life assurance policy taken out by an employer on the life of an employee or director. It pays a lump sum to the employee’s family or dependants in the event of their death in service, providing valuable financial protection whilst offering significant tax advantages for both the employer and the employee.
The tax benefits are considerable:
- Premiums are treated as an allowable business expense, meaning the business receives corporation tax relief on the cost
- Premiums do not form part of the employee’s taxable income and are not subject to National Insurance contributions
- The benefit does not count towards the employee’s annual or lifetime pension allowance
- The lump sum paid on death is free from income tax and, provided the plan is written in trust, should fall outside the employee’s estate for inheritance tax purposes
For company directors in particular, a relevant life plan can be a significantly more cost-effective way of arranging life cover than a personally held policy, as the premiums are effectively funded from pre-tax business income rather than post-tax personal income. For a higher rate taxpaying director, the overall saving compared to a personal policy can be substantial.
Relevant life plans are available to employees and directors of a limited company but are not available to sole traders or equity partners in a partnership, as these individuals are not classed as employees.
How we approach protection advice
Protection is not a one-size-fits-all solution. The right combination of cover will depend on your personal circumstances, your financial commitments, your family situation, and – for business owners – the structure and value of your business. We take the time to fully understand your needs before making any recommendation, and as an independent firm we search the whole of the market to find the most suitable and competitive cover available.
We also recognise that protection needs change over time. As your mortgage reduces, your family grows, or your business evolves, your protection arrangements should be reviewed and updated accordingly. We include a review of your protection as part of our ongoing service to ensure your cover remains appropriate at every stage of life.
FAQs
What protection insurance does an IFA recommend?
We consider life insurance, critical illness cover, income protection, and business protection. The right combination depends on your circumstances – whether you have dependants, a mortgage, existing cover through your employer, and what you could manage financially if you were unable to work.
Why is protection important?
Most people insure their car, their home, and even their pets without hesitation, yet many fail to adequately protect their most valuable asset – their income and their ability to provide for those who depend on them. Adequate protection ensures that if the worst were to happen, your family or business would not face financial difficulty on top of everything else. It provides peace of mind that the people and things that matter most to you are taken care of.
What is term assurance?
Term assurance is a straightforward form of life insurance that pays out a lump sum if you die within a specified period, known as the term. It is typically used to protect a mortgage, replace lost income, or provide financial security for dependants. If you survive to the end of the term, the policy expires and no benefit is paid.
What is critical illness cover?
Critical illness cover pays a tax-free lump sum if you are diagnosed with a qualifying medical condition, such as cancer, heart attack, or stroke. The money can be used however you choose – to repay a mortgage, adapt your home, fund private medical treatment, or simply replace lost income whilst you are unable to work. It is designed to provide financial breathing space at what is likely to be an extremely difficult time.
What is income protection insurance?
Income protection pays a regular tax-free income if you are unable to work due to illness or injury. Unlike short-term sick pay or payment protection insurance, it can pay out until you retire if necessary. It is arguably the most important protection policy most people don’t have.
Do I need life insurance if I already protection with my mortgage?
Mortgage life insurance only covers the mortgage balance and typically ends when the mortgage does. Depending on your family situation, you may also need additional cover to replace your income, fund childcare, or cover other liabilities. We assess the full picture rather than just the mortgage.
Why do businesses need protection insurance?
A business can be significantly disrupted by the unexpected death or serious illness of a key individual. Without adequate protection in place, a business may struggle to survive the loss of a founder, director, or key employee, or find itself in a difficult position if a fellow shareholder dies and their share of the business passes to an unintended party. Business protection insurance is designed to safeguard the financial stability and continuity of a business in these circumstances.
What is shareholder protection?
Shareholder protection is an arrangement that enables the remaining shareholders or directors of a business to purchase the shares of a fellow shareholder who dies. Without this arrangement in place, shares could pass to the deceased’s family, who may have no interest in or knowledge of the business, yet find themselves with a significant ownership stake. This can create serious difficulties for the remaining shareholders and the business as a whole.
What is a relevant life plan?
A relevant life plan is a tax-efficient life assurance policy taken out by an employer on the life of an employee or director. It pays a lump sum to the employee’s family or dependants in the event of their death. Unlike a group life scheme, a relevant life plan is set up on an individual basis, making it particularly suitable for small businesses and limited companies.
A relevant life plan offers significant tax advantages for both the employer and the employee. Premiums are typically treated as an allowable business expense, meaning the business receives corporation tax relief on the cost. The premiums do not form part of the employee’s taxable income. The lump sum paid on death is also free from income tax and, provided the plan is written in trust, should fall outside the employee’s estate for inheritance tax purposes. For company directors in particular, a relevant life plan can be a highly cost-effective alternative to a personally held life insurance policy.