Why Protecting Your Business Is As Important As Ever

Cutting costs is fundamental process for every business in order to reap the most profits possible. However, often many companies choose to overlook business insurance to save money, leaving them vulnerable should something suspect were to occur.

We spoke to one of our financial partners, Elliott Winner of KWM Wealth Ltd., about the relevance of business insurance, the main different types of business insurance and how to go about properly acquiring the right insurance policy for your business.


Why is insurance for businesses so important in this day and age?

Insurance is not something that springs to mind as an area people generally love to spend money on. It should, however, be considered a vital part of a business’s financial plan. An appropriate way to think of insurance, is that it is like an umbrella; you would not want to get caught in a storm without one.

Businesses and their owners need a base layer of protection for unforeseen events, now more than ever, given the events and uncertainties surrounding the pandemic. If we consider financial planning as a pyramid or hierarchy of needs, insurance should be that first layer, as it acts as a safety net for the layers above i.e. cash reserves, investments etc.


What is shareholder protection and who does it affect?

If a shareholder or partner dies, or becomes critically ill, the insurance policy ensures that funds are made available for the other business owners to purchase the business interest of the deceased/ill individual. The loss, or incapacity, of a shareholder can disrupt a company but by having shareholder protection in place the interruption to a business will be minimised by enabling:

  • Business continuity
  • Funds being made available to the individuals who wish to buy the shares
  • An improved tax position on the death of a shareholder
  • The deceased’s family/estate to receive funds in a timely manner

Without this kind of insurance policy, it could take months or even years to conclude a sale to a third party. Alternatively, the spouse of the deceased may decide to retain the shares and if he/she has no knowledge or understanding of the company, this could adversely affect the company.

The spouse will also have problems if their shareholding is small because they have no right to be employed, they cannot demand that a dividend is paid, and the shares may not be easy to sell. Borrowing money to purchase the shares is an option but it should be remembered that this would be done against the backdrop of a potentially traumatic period in time where the company has lost someone who is, perhaps, key to the business. Any lender would take this into account when arriving at the decision to lend.

The use of life cover to meet the liability to purchase shares ensures that the proceeds are available when required, on death or critical illness to ensure a quick conclusion to the succession problem.

The use of trusts and a cross option agreement when structuring shareholder protection help to ensure that the shares are purchased from the estate in a tax efficient way. The cross-option agreement that must be set up ensures that the existing shareholders have an option to purchase the shares from the deceased’s trust. Similarly, the deceased estate has an option to sell the shares to the surviving shareholders. If either party exercise their option, the sale/purchase is enforceable. There is a set time limit on when the shares should be purchased and an agreed process for valuing the company on the death of the shareholder. This ensures that the estate receives a fair value for the shares without a long delay.

Trusts are not regulated by the Financial Conduct Authority.


What is key person insurance and who does it affect?

A business could suffer a devastating financial loss in the event of the death, critical illness, or incapacity of a key individual. Key person protection is intended to cover future loss of profits, so a lump sum received by the business at this time could be critical to ensure continuity of the business. For example, it could be used to cover the cost of finding a replacement and training them or repaying a loan or overdraft that depends on that key person.

A Key Person is an individual whose death, critical illness or disability would have a serious effect on the continuing financial success of the business. For example:

  • Partners
  • Director(s)
  • Senior Employee(s)/Specialist(s)
  • Business Owner(s)
  • Proprietor if a Sole Trader

The considerations for identifying a Key Person and their value to the business:

  • How easily could the business replace their expertise?
  • Would their absence affect business expansion plans or ongoing projects?
  • Would the business be in danger of losing customer orders?
  • Would it result in a loss of goodwill or hardening of suppliers credit terms?
  • Would the business miss their administration or management contribution?
  • Are there any loans or overdrafts dependent upon the key person?

When thinking about how much to insure for Key Person cover, some guidance can be formed basing it on:

  • Multiple of profits
  • Multiple of salary
  • Proportion of salary roll
  • Outstanding loans


What is a Relevant Life Plan and why is it important to both employers and employees?

A Relevant Life Plan (RLP) is a Term Assurance that provides a lump sum on death or diagnosis of a significant illness before age 75. The plan is established and paid for by the employer for the benefit of an employee and their family. Relevant Life Plans have been designed for use by any employee including the directors of a business.

A plan could be suitable for:

  • Employees with (or who are likely to have) significant pension benefits
  • Employers who wish to provide additional benefits not already provided by their Group Life plan
  • Employees who do not (or cannot) have a Group Life plan

A key consideration for businesses is the tax treatment of RLPs:

For the employer

The premiums are treated as a business expense for corporation tax purposes and are not subject to employer’s National Insurance payments. The cover provided must meet the HMRC’s ‘wholly and exclusively’ test.

For the employee

Premiums paid by the employer are not treated as a benefit in kind and are not subject to National Insurance. If a claim is made on the policy, the benefits are tax free too.


What are some of the other business insurance policies which employers should think about?

Aside for the above insurances which cover the business and its key stakeholders, there are some insurances which a business should consider (and in some cases actually need in place in order to trade) and include:

  • Employers’ liability cover (if businesses have staff)
  • Public liability insurance (if businesses are dealing with members of the public)
  • Professional indemnity insurance (if the business is offering advisory services)
  • Buildings insurance (if the business operates from a premises)
  • Business interruption insurance (to protect a business from loss suffered by damage from a fire/flood)
  • Cyber insurance (this is a hot area right now because it covers the liability for a data breach involving sensitive customer information – there have been many recent high profile cases here)


What is the best way to go about finding a good insurance broker?

Word of mouth recommendations from associates/friends/family who have a good reputable person or company they trust tends to be the best way. There are the large insurance companies that business owners can go direct to, however, a broker or adviser is likely to be more appropriate because they can go to the marketplace to source the best cover to suit the business’ needs.

If business owners are considering the ‘DIY’ method without taking advice, we would always stress that buying insurance online is very risky. This is because often business owners do not always know what they are looking for, or could miss the small print, and these can end up being extremely costly mistakes that will only be found out as and when a claim is made.


We hope this has outlined to you the importance of business insurance and why they should be acquired. If you require any further information on other insurance policies, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.

Beyond Accountancy

At Nordens, we're more than just accountants - we're business experts who can help you achieve your biggest goals.

Nordens Strategic

Our specialist strategic division at Nordens boasts some of the leading entrepreneurial business minds in the country. We cater towards delivering consistent success stories, whilst helping businesses achieve above and beyond their initial goals.

Through highly-tailored guidance, coaching and advice, Nordens Strategic are able to define exactly how your business can reach new levels of success.

Regardless of how you define ‘success’ for your business, our strategic service is guaranteed to bring about real and lasting change. By partnering with some of the UK’s top business coaches, we’ll steer you along the path to a greater future.

Accounting 2 You

Every business, no matter how big or small, needs to make the right decisions, and how to best manage your accounts can put huge question marks over your business. Accounting2You is here to take that pressure off and provide you with all the answers you need.

Our bookkeeping branch offers a fully inclusive, comprehensive service that you can trust. Since 2005, our specialist bookkeepers have been successfully managing the accounting of both individuals and small businesses.

With experts in payroll analysis, credit control and financial recording, Accounting2You will lead your business efficiently, and with real purpose, towards a prosperous future.

Voted as EXCELLENT - 9.9 out of 10 based on 167 reviews

Chris Dyer

Director - Metro Bank

Nordens are always very easy to deal with and extremely professional and efficient. I would have no hesitation in recommending them to my clients for their accountancy needs, no matter how complex they may be.

Read more reviews on Trust Pilot

Jamie Brown

Co-Founder - Chicmi Limited

Very good to work with - the team go above and beyond to make the accounts easy and efficient. They're all super friendly and a joy to work with.

Read more reviews on Trust Pilot

Simon Rose

Director - Rose Opticians

I have been using Nordens Chartered Accountants for 5 years and very happy with the service provided. All members of the team are very knowledgeable and have a wealth of experience which has proved very beneficial to my organisation

Read more reviews on Trust Pilot

Rebecca Bossick

Founder & Director - Physio LDN

Very easy to contact and put me in touch with the right person whenever I need to ask any questions. Extremely knowledgeable and can help me manage my various businesses whenever I need.

Read more reviews on Trust Pilot

James Aconley

Principal - Pauline Quirke Academy

Great accountants, always available to offer advice. The team have transformed my business.

Read more reviews on Trust Pilot

Christopher Wilce

Founder - Dataphone

Having worked with Nordens over the last 5 years, not only to look after my annual accounts but they have also provided outstanding professional advice. They have guided me through a Company share buyback with clear and objective advice. We have also been using Nordens strategic services for a couple of years, which has helped bring about significant improvements that exceeded my expectations. With experience of working with several local accountants over my 29 years in business, I’m very pleased with the service I have received from Nordens.

Read more reviews on Trust Pilot

Dave Hodges

Director - Linekers

Trusted our business with Nordens for over 10 years now and watched the company grow into the successful innovative business it has become today. Deservedly so. Every aspect of financial advice we need is always given promptly and with a smile. We have total confidence in all aspects of advice Nordens give. If you are looking for accountants, its a no brainer!

Read more reviews on Trust Pilot

Tony Charles

Founder - Foundation Sports Limited

A fantastic, modern, vibrant firm that care about the clients and their staff in abundance. It is rare to find an Accountancy firm with such vibrance and focus and relationships. It is no wonder they win award after award in their field.

Read more reviews on Trust Pilot

Peter Horlock

Managing Director - Prime Time Boilers

I have been with Nordens for many years now and they are a great accountants.

Read more reviews on Trust Pilot

Simon Cushing

Founder - Vivid Finishes

We have used Nordens for the last 5 years and have had a great service throughout. The guys are very passionate about what they do and have played a part in the growth of our company, highly recommended.

Read more reviews on Trust Pilot

Andrew Martin

Managing Director - AMD Interior Architecture

Great Service at Nordens from a friendly very approachable team Particularly Kirsty Willis and Joe Sword who have been helping us since we started the business in 2016.

Read more reviews on Trust Pilot

James Robinson

Director - Forma London

Nordens provide a first class service. We moved to Nordens last year and have been impressed with the level of service provided. Keep up the good work!

Read more reviews on Trust Pilot

Latest News

We've always got our ears to the ground when it comes to interesting, useful and topical information relating to business and accountancy.

Business Credit Rating Score…
Most of us are familiar with credit scores, essentially a 3-digit number that shows how likely you are to be accepted for credit. The higher the rating, the more likely you are to be accepted for a credit application, whilst th...
Changes To National Insurance…
National Insurance is the bedrock of the state system, basically a tax on all earnings and self-employed profits from an individual. National Insurance Contributions (NICs) can be a confusing and complex situation for many, not...
Nordens TV

We love making videos that break down convoluted accountancy jargon into plain-talking, actionable and accessible facts.

Tax On Cryptocurrency? –…
I’m sure plenty of you have heard of cryptocurrency, especially the popular variants of Bitcoin, Ethereum, Litecoin and Cardano to name but a few. In fact, there’s thousands of different coins and tokens in circulation, with ne...
10 Easy Ways To…
Growing your business can often be an overwhelming and complex task, however by simply following some key guidelines you’ll place yourself in the best position to advance and cultivate success. Check out our Top 10 ways to grow...
  Why I Founded Nordens
Accounting 2 You

In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier. The difficult part, for me, was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.

Mark Norden Signature

Mark Norden

We're Professionally Certified

Our limited company accountants have a range of qualifications from The Institute Of Chartered Accountants (ICAEW) to the Association of Chartered Certified Accountants (ACCA). We worry about the bye-laws, regulations and ethical guidelines of the ACCA so you don’t have to! That makes us an ACCA-accredited employer as well as a Professional Passport-accredited one!