I have met a great number of business owners, and I have found that there is often a disparity between their personal and business financial arrangements.
Running a business can be tough. When the business is going through a difficult period, sacrifices have to be made. The business owner will seek to reduce both the costs of running the business and their personal expenditures. Often, the first thing that is cut is their life insurance.
Why cut the cost of life insurance?
We all live in a bubble of optimism, forgetting that bad things can happen to nice people.
The business owner’s focus is on temporary cash flow issues within the business and feeding their family.
Yet as a director of the business and a responsible employer, they are providing death-in-service life insurance of up to 4 times the salary of their employees.
The family of a dead employee, who was on a salary of £100,000 per year, would receive £400,000. That’s a decent sum and probably enough to make sure they can remain comfortable when they’re no longer around.
What does this mean for the director’s family, whose life insurance has been cancelled?
The risk of their loved ones being left with nothing—what happened to those hollow promises, “to have and to hold from this day forward”?
As the head of your family, you should put your family first and your business second.
You have a responsibility to make sure that if disaster strikes, you’re leaving those you leave behind with security and stability.
The good news is that there is a great benefit available to business owners when it comes to life insurance.
As a director of a limited company, you can take out life insurance through the company.
Like pension contributions, this will be an allowance expense, which will reduce the company’s corporation tax liability.
The smart thing to do is to arrange your life insurance through the business, with the business paying the premiums. It will not be treated as a benefit in kind (if arranged correctly).
And any benefit will be paid to your family free of tax.
