Financial planning insight
New Partners? Arrange a Business Protection Review
Bringing in a new employee, director or business partner is a good time to arrange a business protection review. Your company may now depend on different people, have greater financial commitments or face new risks if someone dies or becomes seriously ill. Reviewing your cover when the team changes helps ensure your protection arrangements reflect the business you are building.
For many UK businesses, growth happens gradually. You hire an experienced manager, bring in a specialist employee or give a trusted colleague a share in the company. These changes can strengthen the business, but they can also leave gaps in your existing protection if your policies have not kept pace.
Why a new appointment calls for a business protection review
When someone new joins, consider how much the business relies on them. An employee responsible for a major client account, a director overseeing operations or a shareholder bringing essential expertise could have a significant impact on the company's finances if they were no longer able to work.
Your existing protection may have been arranged when the business was smaller. The people insured, cover amounts and risks considered at that time might no longer reflect the company's current position.
A business protection review gives you an opportunity to reassess these risks before an unexpected event occurs. It also helps you distinguish between cover the business genuinely needs and policies that may no longer be appropriate.
Which protection should you review when someone joins?
The right arrangements depend on whether the new person is an employee, director or shareholder. These are the main areas worth considering.
Protection area | When it may be relevant |
|---|---|
Key Person cover | A new employee or director becomes essential to revenue, operations or client relationships. |
Shareholder Protection | A new shareholder joins and the owners need to consider what happens to their shares if they die. |
Relevant Life cover | You want to review death-in-service provision for an eligible director or employee. |
Income Protection | A director or business owner relies on their earnings and needs to consider how these would be maintained if illness or injury prevented them from working. |
These arrangements serve different purposes. For example, Key Person cover may help the company manage the financial impact of losing an important individual, while Relevant Life cover is designed to provide life cover for an eligible person's beneficiaries. One policy should not be assumed to replace the need for another.
HMRC explains the conditions that can apply to the tax treatment of Key Person insurance in its guidance on insurance for employees and other key persons. The treatment depends on the purpose and structure of the policy, so tax relief should never be assumed.
When a new business partner or shareholder joins
A new shareholder brings an additional consideration: ownership. If a shareholder dies, their shares may pass to their estate or beneficiaries, depending on the circumstances and the company's arrangements.
The remaining shareholders may want to retain control of the business, while the deceased shareholder's family may prefer to receive the financial value of the shares rather than become involved in running the company. Without suitable arrangements, this could create uncertainty at an already difficult time.
A business protection review should therefore consider whether Shareholder Protection is appropriate and whether the existing shareholder agreement supports the intended outcome. Depending on the arrangement, insurance can provide funds to help surviving shareholders purchase the shares following a qualifying event.
It is also worth reviewing how the shares are valued, who would receive the policy proceeds and whether the cover amount remains suitable as the company grows. These details should be coordinated with appropriate legal advice.
When appointing a director, there are wider responsibilities to consider too. GOV.UK guidance on directors' responsibilities explains the duties directors have when running a limited company. Reviewing governance alongside financial protection helps the owners understand the wider implications of changing the company's leadership.
What if the new employee is not a director or shareholder?
A business protection review can still be worthwhile when you hire an employee who does not own any shares. Some employees are central to the company's ability to operate, maintain customer relationships or generate income.
For example, a small consultancy might recruit an experienced specialist who becomes responsible for its largest clients. If that person died or developed a serious illness, the business could face lost income, recruitment costs and disruption while finding a replacement.
The question is not simply how senior the person is. It is how difficult and costly their absence would be for the business. If the impact could be substantial, Key Person cover may be worth considering.
You should also review employee benefits and relevant life arrangements where appropriate. Any recommendation should reflect the company's budget, the person's role and the cover already available.
Business protection review: common questions
Should I review Key Person cover when a new partner joins?
Yes. Assess whether the new partner brings skills, relationships or responsibilities that the business would struggle to replace. If the company's reliance on that person has increased, your existing Key Person cover may need to be reconsidered.
Does a new shareholder need Shareholder Protection?
Not automatically, but their arrival is a sensible time to review the ownership arrangements. Consider what should happen to their shares if they die, whether the remaining shareholders want to buy them and how a purchase could be funded.
Do I need to change existing policies when I hire new staff?
Not necessarily. Hiring someone does not automatically mean you need additional insurance. Review the person's responsibilities, the risks they introduce and the cover already in place before deciding whether changes are appropriate.
When should I arrange a business protection review after someone joins?
Ideally, review the arrangements as part of the appointment or ownership change, rather than waiting for the next annual review. This gives you an opportunity to identify gaps early, although any new insurance will remain subject to the insurer's terms and underwriting.
Keep your protection aligned with your business
Bringing in new staff, appointing a director or welcoming a shareholder can be an important step in your company's development. It is also an opportunity to check whether your financial protection still reflects the people and responsibilities on which the business depends.
A business protection review helps you assess those risks, consider suitable options and identify any gaps without assuming that every business needs the same policies.
If your team or ownership has recently changed, speak to an independent financial adviser at Castle Stonebridge Financial Planning. A review can help you understand your options and decide whether your current arrangements remain suitable.
Disclaimer* Protection policies are subject to terms and conditions. The availability and cost of cover depend on individual circumstances, including age, health, occupation and the level of cover required.