For financial adviser use only. Not approved for use with customers. Business protection. A guide for financial advisers

Transcription

1 For financial adviser use only. Not approved for use with customers. Business protection A guide for financial advisers

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3 In this guide Why choose Aviva for business protection? We re known for our expertise in the personal protection world and we bring the same award-winning approach to business protection. Who needs business protection? Which types of businesses could benefit from business protection and why they need it. The types of business protection Looking at the three types of business protection available from Aviva: key person protection, share/partnership protection and business loan protection. Includes case studies. Underwriting We have vast experience of medical and financial underwriting, helping your business protection applications go through quicker and more smoothly. Tax and trusts Find out about the tax issues that apply to business protection policies. Finding new clients Let us help you build up your client base. Sales support We offer a range of tools and support to help you reach business protection clients and set up and write business. Get in touch Our dedicated protection sales and support team can answer your questions.

4 Why choose Aviva for business protection? 4 Aviva is a household name, with a strong brand that is recognised and trusted by many. As the UK s largest insurer, we know what it takes to protect a business. With our business protection policies, we cover all kinds of companies, from small retail establishments to large media organisations, and everything in between. Altogether, we currently insure UK businesses to the tune of more than 3 billion pounds. We bring the same level of financial stability and excellent underwriting standards to our business protection as our personal protection. Six reasons to choose Aviva for business protection 1 First class service at every step 3 Speedy underwriting l Your case will be handled by our dedicated business protection team. They ll help your clients applications go through smoothly and keep you updated on progress by whichever contact method suits you best. l We have vast experience of medical and financial underwriting, meaning applications go through quicker and more smoothly. We also have high limits before we ll need to see any routine financial evidence. l The team also includes experts in tax, trusts and underwriting whose advice you can access by phone or . l Our freephone What if helpline will help you clarify queries before you apply allowing you to find out our likely underwriting decision in advance and manage your clients expectations. 2 Competitive pricing l We regularly review our non-medical and financial underwriting limits to make sure they re competitive. l Plus, you can take advantage of our price beating offer on high value cases. If you ve had a quote for a sum assured of 1 million or more, we ll try to beat it. l Our online Underwriting Centre gives information on medical conditions and evidence needed potentially saving you and your clients valuable time. l Our specialist High Value Team uses high multiples of net profit when valuing a business or income when valuing a key person, meaning a higher level of cover for your clients.

5 5 4 Comprehensive critical illness cover 6 An exceptional claims record l Our most comprehensive critical illness cover ever We cover 57 conditions (with the inclusion of the terminal illness benefit provided under the life policy), of which 18 are ABI+. We also include 11 additional benefits as standard. l We have a consistently high record of paying death claims % in l We paid 92.9% of critical illness claims in 2013, that s a total of over 158m. l ABI+ definitions for the top four most commonly claimed for conditions - cancer, multiple sclerosis, heart attack and stroke. l Altogether we paid more than 505m in claims in 2013, equating to more than 1.4m per day. 5 A strong, stable brand l As the UK s largest insurer, we provide cover for thousands of UK businesses and we re a name many of your clients may already know and trust. l We re also one of Europe s leading providers of life and general insurance, serving over 50 million customers and businesses worldwide. This gives us considerable financial strength. So, you and your clients can feel assured that we ll be here when they need us most. To find out about the sales support you can access, please turn to page 25.

6 The business case for business protection Thousands of UK businesses don t have any insurance in place to protect their most important asset their people. This creates a wealth of opportunities for you to speak to business owners. 6 Ask most people who run a business and they ll tell you that insurance is one of their basic running costs. They pay out for insurance for buildings and contents, for public liability, for key equipment, stock and vehicles to name but a handful of examples. Yet despite putting insurance and contingency plans in place for all of their physical business assets, many companies often haven t even considered protecting their real key asset: people. People are at the heart of any business, and are responsible for its success. Without key members of staff, a business could come under serious stress, and may even have to stop trading. In a business partnership of two 35 year old male non-smokers, there s around a 13% chance that one of them will die before the age of 65. Desirable Needs Staff Benefits, PMI, Catering Facilities, IP, Group Life Operational Needs Employees, Staff Liability Insurance, IT Equipment, Office Culture, Office Furniture, Organisational Structure, Professional Indemnity Insurance, Environmental Liability Insurance Although most businesses protect their physical assets, most overlook the protection of their most important asset their people. Financial protection underpins the protection of all other assets. Mandatory Needs Vehicles, Health & Safety Compliance, Motor Insurance, Public Liability Insurance, Security Systems, Buildings Insurance, Contents Insurance, Pensions, Company Cars, Trade Credit Insurance Survival Needs Utilities, Premises, Offices, Machinery, Stock, Sufficient Cash Flow/Bank Loan, Financial Protection

7 A business protection policy could help make sure that a business can: l pay its debts l replace key employees l protect its profits l give the partners the money to keep control of the company if a partner or director dies. Without business protection, the effect of the death or serious illness of a key person on a business can be significant. In some cases it can lead to the business being unable to trade, affecting people s livelihoods. You may find that even if business owners have thought about business protection, they don t see it as a priority. Even if they do, they may see it as both complicated and expensive, something that s not necessarily true. The business case for you Business protection can offer you the chance to expand your client base, whether you re just beginning to sell it or you want to increase the amount you sell. With so many unprotected businesses around, there are plenty of opportunities for you to discuss business protection with your clients. And, if you need a little more incentive to consider business protection, the average case size is around 338,000 - significantly more than the average case size for personal protection. Business protection from Aviva In this guide, we will give you the information you ll need to sell and set up business protection for new and existing clients. Whether you re new to business protection or just want some tips on selling it, we ve got something here to help you. The guide explains the three main types of business protection, the types of firms they are most suitable for, and includes case studies showing how they work. We also give you tips on how to identify and reach clients to make the most of the opportunities business protection offers. If you have any questions, please call our protection sales and support team on One of our specialists will be on hand to help you. 7

8 Who needs business protection? While every enterprise has different needs, all of them can benefit from one or more of Aviva s business protection products. People are a business s greatest asset, and the importance of protection is just as vital for a small business as it is for a large company. You may not realise how many of your current clients could benefit from business protection and how many suitable new clients may be near you. 8 Sole traders Here, it is often the case that the sole trader is the business. Often, not only is the owner the key person, but it s possible that the business itself will end should they die or become critically ill. Because of this, the sole trader will usually take out the business protection policy and write it under trust for the benefit of their family or dependants, or themselves in the case of critical illness. The beneficiaries could use the money from the plan to carry on the business if possible. If not, the money effectively replaces the income the beneficiaries have lost from the business. You could recommend: Partnerships These are businesses that may have grown from sole trader status, such as solicitors, estate agents and doctors or dentists practices. While many partnerships operate on an informal arrangement, if there is no legal agreement in place then the death of one partner automatically dissolves the partnership. Tailored cover, protecting the interests of each partner, will give them and their families peace of mind against the financial consequences of a partner dying or suffering from a critical illness. In England, Wales and Northern Ireland, a partnership is not a legal entity. So, if the key person is one of the partners, that partner will take out the policy on his own life. The policy should be set up under a business trust for the benefit of the other partners. Key person protection Business loan protection If the key person is an employee of the business, the policy can t be set up in the name of the business as the partnership is not a legal entity. Instead, all the partners would take out a policy on the life of that key person. There s no need to put the policy under trust. You could recommend: Key person protection Business loan protection Share protection

9 9 Limited liability partnerships (LLP) Similar to a partnership, these businesses benefit from legal arrangements limiting the liabilities of their owners (the members). However, as an LLP is likely to be a larger enterprise such as a law firm or accountancy practice, there will likely be a need to protect key people within this business. If the LLP expands, the members may find they need additional company funds, which means that business loan protection may also be something they might consider. As a LLP is a legal entity, it can take out the policy in the same way as a person or company can. A member will sign the application and, as for a company, no trust is required as any policy proceeds will be paid direct to the LLP. You could recommend: Private limited companies A private limited company may involve just one person, or have a workforce of several hundred employees. It has limited liabilities, but is far more likely to have multiple shareholders and greater responsibilities for its owners. Share protection, along with a legal agreement suitable to their circumstances will help major shareholders to feel reassured that their interests and those of their families are looked after. The company would take out the policy on the life of the key person. Normally, a director would sign the application for and on behalf of the company. As owner of the policy, in the event of a claim, the policy proceeds will be paid directly to the company. No trust is required. You could recommend: Key person protection Business loan protection Share protection Key person protection Business loan protection Share protection

10 Key person protection Key person protection can help protect a business if one of its key people someone creatively, technically or strategically vital were to die or fall critically ill. In almost every business, there will be a number of key individuals who make a major contribution to its success or profitability. Without those people, it s likely that the business would be severely affected. The firm could face challenges like trying to replace the key person and the costs associated with that, dealing with the implications of losing contracts, experiencing a fall in profits and having to repay loans. The loss of a key person may even bring a company to the point of being unable to trade or to cease trading completely. With all that in mind, it s worth looking into key person protection for anyone that is central to the business operation. Problems your client could face Whether the key person provides expertise, contacts or other assets, their loss could be very damaging to the business. 10 Here are some of the questions a business owner should consider: How would you find and train a replacement if a key person in your business died unexpectedly or became critically ill and how long would it take? Would you lose the detailed knowledge or expertise needed to continue running the business if you lost a key person? Would losing a key person leave you vulnerable to competitors who may be able to exploit the situation? Would you run into problems raising money for new ventures, expansion and so on without a key person? Would you be in danger of losing contracts, goodwill or important contacts if you lost a key person? Would you find yourself having to repay a loan in full if you lost a key person? Would you have difficulty meeting loan repayments if one or more of your key people were no longer around? and how key person protection could help Key person protection offers a business protection against problems like those we ve outlined above. Essentially, its life cover that will give the company a cash injection if the person covered dies. A company can also add critical illness cover to the policy. This pays out a lump sum if the key person is diagnosed with a critical illness. Some companies use the money from a critical illness policy to give support to the employee or their family. For example, some employers offer to pay the costs associated with medical care and recovery for valuable employees. Alternatively, if the company expects the key person to return to work, it could use the money to help reduce potential business losses by employing someone else in the interim. Here are a few ways the firm could use the money: l Paying off loan/overdraft to alleviate financial pressure l Help keep business turnover going l Pay suppliers l Supporting the key person s family l To help reduce potential business losses by employing someone else to do the job Critical illness cover is only available as an option on our life insurance policies.

11 Key person protection: a case study This case study is fictitious, but gives you an idea of how business protection can work. The problem Warwick Holdings is a family run property development firm, jointly owned by three brothers, Ian, Andrew and Harry Warwick. If one of them died or became seriously ill, the effects could be devastating for their company, its future and their employees. Their architect, Jenny Evans, is a key person in their business. Not only does she have unique skills in the business, she also has many business contacts and plays a significant role in the firm s future prospects. If anything happened to her, the Warwicks know it would be very hard to replace her. The solution Ian Warwick speaks to his Financial Adviser. For each brother, he suggests the company pays for key person protection fixed term critical illness and life cover, lasting until they retire on their respective 65th birthdays. For Jenny, he suggests the same policy, but to run over a five-year term, so they can review the situation then. As the firm is a limited company, the directors need to record their intentions in the official minutes of a board meeting. The cover We ll consider the impact on the firm of losing an individual, a business recovery period and recruitment costs to replace the key person. We may also look at an average of the last three years profit. In this case, we ll use straight multiples of the salaries of each person. Ian 5 x 100,000 = 500,000 Andrew 5 x 50,000 = 250,000 Harry 5 x 50,000 = 250,000 We can consider higher multiples of salary for life cover. For critical illness, we ll consider up to five times an individual s salary. For Jenny, we need to value her design ideas and input to the business. To do this, we ll think about the costs to the business if something happened to her. Jenny An interim architect to work on current projects: 50,000 Recruitment and training costs (including the cost of management time: Expected loss to business until things are running smoothly again: 15,000 60,000 TOTAL 125,000 The company shouldn t need to put the policies under trust because any payout would be for the benefit of the company, not the brothers families. Tax treatment Warwick Holdings needs to confirm the tax treatment with HM Revenue & Customs. It s likely that the premiums for Jenny are tax deductible as she is an employee and the policy is to cover company profits. However, the premiums for the brothers are unlikely to be tax deductible as they have a significant share holding. 11

12 WarWick Holdings Ian Warwick (Owner) Andrew Warwick (Owner) Harry Warwick (Owner) Jenny (Key Person) The owners need to cover the risk to the business if any one of them were to die or become critically ill. They also need to protect the business from the potential consequences of losing Jenny. 12 The owners take out protection The owners don t take out protection Fixed term critical illness & life cover per owner to run until they reach age 65, plus the same policy set to run for 5 years to cover Jenny. l If one or more of the directors dies or becomes critically ill, key person protection kicks in. l The directors also covered a key person. If she were to die or become critically ill, the policy would also pay a cash lump sum to the business. l The money from the policy can be used to help support the business in a number of ways: l Pay off loans or overdrafts l Cover the costs of recruitment & training l Cover the cost of employing temporary cover l Help absorb the impact of any loss of profits e.g. due to lost contracts l The business could struggle to cover the costs associated with losing a director or key individual: l Replacing a director or key person will cost the business money and time. l The business could lose contracts due to the loss of an existing client relationship or perceived loss of expertise. l The business reputation could be impacted and result in a fall in profits. l There may be existing loans that need to be repaid.

13 Share protection Shareholder protection helps shareholders or partners keep control of their business if one of them dies or is diagnosed with a critical illness. The loss of a stakeholder (partner or shareholder) can have a huge impact on the success of a business. A company can use Share protection to provide a sum of money to the remaining stakeholders if a major stakeholder dies or is diagnosed with a critical illness. It helps the remaining stakeholders keep ownership and control of the business. It also offers financial security for the surviving stakeholders and the family of the late or ill stakeholder. You may find that a partnership agreement or a company s articles of association already specify what would happen if a business partner suffers a critical illness or dies. Because they ve already shown this level of consideration for the succession planning of their business, asking them to look at business protection should be a logical step. Problems your client could face Several issues can arise if a stakeholder dies. 13 Here are some of the questions you could put to your prospective clients: Are you able to find or re-allocate funds to buy the late stakeholder s interest or shareholding in the business? Without having to take out a loan? What would you do if a stakeholder s beneficiaries want a quick cash payment instead of shares or a share of the business? What would you do if a stakeholder died and their interest passed to beneficiaries who don t have the necessary skills and experience to make a worthwhile contribution to the business? Would you need to find a third party to provide the cash to buy out the late stakeholder s estate? Being unprepared for situations like these can lead to serious financial problems and even loss of management control. That means it s important to have money available to cover the value of shareholdings. and how share protection could help With share protection, the product provider pays out a sum of money to the remaining stakeholders if one of them dies. They can use that money to buy the late stakeholder s share of the company and keep ownership of the business. A business may have a partnership agreement or articles of association in place that outline what would happen to the business shares if a partner suffers a critical illness or dies. This gives the surviving partners or shareholders a legal framework providing the right to buy the shares of the partners. Share protection would give them the financial means to back up their legal right to buy the late partner s shareholding from the beneficiaries. This ensures they can carry on doing business without the involvement of anyone else, like the beneficiaries, providing business continuity. In return, the beneficiaries will receive an agreed payment for their shares, giving them some financial security. The sum assured for each partner or shareholder should match their individual holding. If that s not the case, the product provider will ask for the reason why before they decide whether to cover that person. In partnership protection planning, the partners usually take out business protection policies individually. The policies may be written in trust from the start for the benefit of the surviving partners. We ll normally place these into a flexible business trust.

14 14 Setting up share protection Did you know a partnership will automatically dissolve if any of the business partners die unless an agreement exists to the contrary? Your client can set up an arrangement to legally protect the partners or shareholders. Legal protection is different to financial protection. If a firm already has legal protection in place, it s definitely worth talking to the partners about a business protection policy. Should the worst happen, this will give them the cash to act on any legal agreement they have in place. There are four main ways of setting up share protection: 1. Buy and sell agreements These are legally binding agreements that lay down who can buy the interest in the business and at what price it will be sold. If death is the trigger, the surviving stakeholders must buy the late partner s interest in the business from the estate using a pre-agreed method of valuation. HM Revenue & Customs (HMRC) usually treats this as a contract for sale, which means your clients will lose business property relief for inheritance tax. 2. Buy/sell or cross-option agreements Surviving partners or shareholders have an option to buy and the estate to sell shares within a pre-determined period. The estate is legally bound not to sell the shares to anyone else during that time. Most cross-option agreements only cover death, not critical illness. This means clients may also need a single option agreement to cover critical illness. HMRC doesn t see these agreements as contracts for sale, so they don t affect business property relief. 3. Single option agreements A single option agreement gives choices to a partner or shareholder who becomes seriously ill. They can either stay in the business or sell their share to the other partners or shareholders, who must buy them out. The main advantage is that the firm won t lose business property relief as HMRC doesn t see this as a contract for sale. 4. Automatic accrual method Used mainly by partnerships, this method means that if a partner dies, their shares pass automatically to the remaining business partners. All the partners in the business take out life policies to compensate their estate for their share of the business. The life policies are generally put in trust to make sure that the money goes to each partner s chosen beneficiaries. Share protection: a case study This case study is fictitious, but gives you an idea of how business protection can work. The problem Paul Forbes is a director of Forbes & Co, a construction company which has grown considerably in size over recent years and taken on a large workforce. Involved with the day-to-day running of the business, he has a considerable interest in the company s operations and success. While currently all in good health, Paul and his co-directors realise it would be sensible for all major shareholders and for the business to reduce their exposure to risk as much as possible. This will make sure the business remains in their control if anything happens to any of them. The solution They take out share protection in the form of a life insurance policy for each director. As the company has a value of 140,000, they each take out a policy of 35,000, covering each of them up to their retirement age. They also set up a cross-option agreement to provide the option to buy and sell the shares if any of the directors die or fall critically ill. The policies are written in trust for the benefit of the surviving shareholders. Should Paul die, the agreement would come into force providing the remaining three directors with 35,000 from the policy to buy Paul s shares from his wife. This makes sure his estate receives the full value of his shareholding. The remaining shareholders would immediately have complete control of the company. Without a cross-option agreement, Paul s shares would have passed to his wife. The cover Premium costs can differ, according to personal health and circumstances. As Paul is slightly older than the other directors, they use premium equalisation to make sure the cost of protection is fairly divided between them. It also establishes the policies are purely commercial in nature. This is essential to make sure there are no inheritance tax implications.

15 Paul Forbes Director Alan Dugdale Director Rebecca Halsy Director Isaac Emery Director The business is currently worth 140,000. The directors need to reduce its exposure to the risk of one or more of them dying or being diagnosed with a terminal or critical illness. 15 The directors take out protection The directors don t take out protection 35,000 per director to cover them until retirement age, used in conjunction with a cross-option agreement. l If one or more of the directors dies, the share protection agreement kicks in. l The surviving directors get the money from the life insurance policy. They can use this to buy out the shareholding of their late colleague. l Under the share protection plan, the directors have a certain amount of time to buy the late director s shares from his or her beneficiary. l The late director s beneficiary will receive a lump sum in return for the shares in the business. l The business can continue trading with less interruption than if the surviving directors had an unsuitable addition to the team or a power struggle with the family. l If one of the directors died or was diagnosed with a critical or terminal illness, they may need to take out a loan or approach a third party in order to buy that director s interest or shareholding in the company. l Without the funds necessary to buy the shareholding, the shares could pass to beneficiaries who don t have the necessary skills or experience to make a worthwhile contribution to the business. l These beneficiaries may have no interest in keeping their share of the business and may want a quick cash payment instead.

16 Business loan protection Business loan protection makes sure your client s business can repay a loan if the worst were to happen to the guarantor. When a company takes out a loan, it needs to be sure it can meet the repayments, no matter what happens to the business. Problems your client could face Here are some of the questions you could ask your client: If you lost a key person through death or critical illness, would you be able to pay off any existing loans? Would the families of directors or key people who have acted as fund guarantors be directly affected if the business were to default on payments for any reason? 16 and how business loan protection could help A lender will often make business loan protection a condition of the arrangement before releasing funds, and the directors may be asked to sign a personal guarantee for the loan. A lender will usually consider life cover, critical illness cover or a combination of both for key people in the business as adequate protection. The cover doesn t have to be the same for each person, but it must be possible to assign the policies to the lender if that is a condition of the loan. For each business, the total sum assured of all individual policies must be equal to the full amount of the loan. The initial sum assured is the amount of the loan at that time. You ll have to provide confirmation that the loan has been drawn down, when you ask for the cover to start. Fixed-term policies remain in place for the duration of the arrangement, with decreasing or level term assurance as necessary. Should the key person covered by the plan die, we ll pay out a claim and the remaining partners can put the money towards repaying the outstanding loan amounts. Business loan protection: a case study This case study is fictitious, but gives you an idea of how business protection can work. The problem Michael and Christine own a small chain of gastro-pubs. When a competitor went out of business, they had an opportunity to buy a large amount of new oven equipment, which would improve the service in their kitchens. However, with their cash flow being at an all-time low, they needed a business loan to close the deal. The solution After reviewing the couple s business plans and the pubs takings over the last three years, their bank was happy to arrange a five-year business loan for the purchase. As a condition of the loan, the bank asked the couple to put a business loan protection policy in place over the loan period, with the lender as the beneficiary of the policy. The cover Michael and Christine spoke to their financial adviser, and both took out life and critical illness cover, with a decreasing term assurance policy covering the total amount for five years (the duration of the loan). The policy is assigned to their lender to make sure the bank receives the benefits if they make a claim.

17 Michael (Owner) Christine (Owner) Michael & Christine need a bank loan to buy new oven equipment. 17 They take out business loan protection to cover the amount of the loan They don t take out protection l The bank agrees the loan as the condition of having business loan protection in place has been met. l They are able to go ahead and purchase The new kitchen equipment, allowing them to expand their business. l If either owner dies or becomes critically ill, the policy pays out a lump sum directly to the bank and the loan is paid, so the business is not liable. l The bank could refuse the loan if loan protection is a condition of lending. l If a loan is secured without business protection in place, if either owner dies or becomes critically ill, the business would be liable to repay the outstanding debt. l If a loan cannot be secured, they may not be able to afford the new equipment to help them grow the business. l Rival companies may be in a position to expand and the business could suffer from increased competition.

18 Underwriting We have vast experience of medical and financial underwriting, helping your business protection applications go through quicker and more smoothly. Our service promise Our service promise covers all our business protection cases. Here s what it includes: 18 We will register your client s application within 24 hours. We will chase up any case that has outstanding underwriting evidence, either by phone or . We will confirm what information our underwriters need within 24 hours of them picking up the case. We will give you regular updates on every case, by whichever contact method you prefer. We will action each piece of underwriting evidence within 48 hours of receiving it. We will call you within 24 hours of our underwriters making their decision. Our Protection Promise means your clients get free life cover between application and completion.

19 Higher limits for evidence At Aviva, we don t usually ask for extra supporting evidence for cases up to 3 million of life cover or 1.5 million of critical illness cover. If we do need to financially underwrite a case, we aim to make the process as efficient and painless as possible. High value underwriting Our dedicated high value team is made up of specialist underwriters, who have vast experience of both medical and financial underwriting. They offer a proactive and flexible approach to make sure we underwrite your application as quickly and efficiently as possible. The High Value team deal with your business protection cases with life cover of 1,000,001 and over or critical illness cover 500,001 and over. We also recognise that your view of a high value case is based upon premium. That s why the team also look after cases with an Annual Premium Equivalent of 6,000 and above. This applies to individual cases submitted on-line. On-line cases have the added benefit of earning an extra 10% LAUTRO for individual case. Contact our specialist High Value underwriters to discuss your individual requirements. Telephone underwriting We offer telephone underwriting for financial underwriting too. At the initial underwriting stage, we ll call you to accept the case financially through a recordable conversation. As we record the calls, if we accept the case you won t need to complete a formal financial questionnaire. Online underwriting centre Our online adviser underwriting centre gives you information on medical conditions and the evidence you need potentially saving you and your clients time. You can go online to: l check what evidence we may need if your client has a medical condition l find out what our underwriting decision is likely to be and what ratings we may apply l test your knowledge of medical conditions and gain a certificate for your personal records (non-accredited). 19

20 Tax and trusts There are various tax issues that apply to business protection policies. 20 Tax relief on premiums For key person protection Tax relief on premiums The premiums on life policies taken out by employers for key person protection may be allowable deductions (attracting tax relief), if they meet these conditions: l The sole purpose of taking out the policy is to cover any potential loss of trading income (not capital loss or as security for a loan) from the loss of the key employee. l It is a short-term life insurance policy covering no more than the maximum potential length of the employee s service if that person doesn t own a significant share of the business. l There is an employee and employer relationship between the person covered by the policy and the company that will benefit from the policy. With an own-life policy, a sole trader may not qualify for tax relief on the premiums, as HMRC may see the policy as a personal benefit to the client and their family. Taxing the money from the policy If HMRC gives your client tax relief on the premiums, it will normally tax any money from the policy as a trading receipt. If HMRC doesn t give tax relief on the premiums, it will decide how to tax any money from the policy, but won t generally tax it as a trading receipt. It s worth noting that if premiums are tax deductible and the client decides not to claim this, it would not stop the policy benefits being taxable as a trading receipt. If you are setting up a Key Person policy, we recommend your client consults their local tax inspector to confirm the tax treatment. For share protection Each director or partner usually pays the premiums for policies they take out for share protection. That means they don t benefit from tax relief. Inheritance Tax For key person protection Getting a sum of money from a key person protection policy can increase the value of a business and consequently the value of shares held by an individual. This may increase both the value of the estate and the inheritance tax liability of a shareholder or person owning the business. Your clients may be able to use business property relief to help reduce any inheritance tax that may be due. You can find out more about this on the HMRC website. For share protection Under a share protection or Partnership Protection policy, the money from a claim won t be part of the estate of the person who took out the policy if it is placed in trust. Discretionary inheritance tax rules will apply if you use a flexible Partner s or Director s Trust. The gift of a policy into Aviva s Partner or Director Trust is a chargeable lifetime transfer. However, you ll create the trust at the start of the policy, so the policy will have no initial value. There won t be a charge of inheritance tax at that time. There is a potential charge to inheritance tax at each 10-year anniversary of setting up the trust. There will be a charge if the value of the trust property is greater than the available inheritance tax nil-rate band. The policy will have little or no value if the key person covered by the policy is in good health and likely to survive the term of the policy. Premiums paid to a trust policy would normally count as gifts for inheritance tax purposes. However, HMRC may accept there is no gifting where there is a reciprocal commercial arrangement requiring all partners or directors to enter into a share protection agreement. If your client has any doubt over taxation issues, they should contact their local tax inspector before a policy starts.

21 Setting up a business protection policy in trust You can place business protection policies in trust to help make sure any money from a claim goes to the right people as soon as possible. This could be hugely important for a business and may help lessen inheritance tax. If you d like to know more about trusts, please read our booklet, Your guide to protection trusts. All references to taxation are to UK taxation and are based on Aviva s understanding of UK law and HM Revenue & Customs (HMRC) Practice as at April The future bases and rates of tax will vary. Although we ve made every effort to ensure its accuracy, Aviva cannot accept any liability for the tax consequences of an action or lack of action taken in the light of information contained in this brochure or in any related documentation. You should rely on advice from your own professional advisers. HM Revenue and Customs reserves the right to decide whether policy receipts are part of the trading income. Capital gains tax Life policies are usually exempt from capital gains tax in the hands of the original owner. Call our helpline on to find out more about tax and trusts. 21

22 Finding new clients Have you heard the saying, Fail to prepare, prepare to fail? As with so many other things, that s true with business protection. Even if you re already selling business protection, we ve got some tips and tools that can help you. If you re going to make the most of the opportunities business protection offers you, you need to make sure that you re fully prepared. Put together a business plan Writing a business plan with set goals will help you measure your progress and see what you need to do and when and act with focus. Here are some things you should consider including in your plan. Goal l Give yourself specific goals. For example: I will write x more business in x months. Objectives l Put SMART objectives in place (specific, measurable, achievable, relevant, with a timescale). For example: I will place x business protection policies on risk every month to earn x in the next 12 months. l Assess your current sales and client contact situation to determine what objectives you need to set to reach your goal. Strategy l Go over your existing bank of clients to see which ones might benefit from business protection. l Think about and plan what activity you need to do to attract new business protection clients. Activities l Make a list of all the things you need to do to achieve your goals. l Talk to your Aviva consultant to see how we can help. l Put your plan in action. 22 Talk to your existing clients You may already have some business owners amongst your clients who could benefit from having business protection in place. Here are some tips on what you could do: 1. Check the employment status- look for self-employed clients they re likely to be running their own business. 2. Look for clients who are directors and partners. You may have set up family protection or a mortgage for them in the past. 3. Check to see if their spouse or civil partner is self-employed or a director or partner in a business. 4. Check your records to see whether any of your clients have previously talked about their aspirations or plans to run their own business.

23 Top tip Use Aviva s financial health check questionnaire to find out what your client s business looks like. It will help you gather key facts like the number of employees or owners, information about any business loans they ve got and so on. It s a more informal approach than a standard business fact find, so it gives you the chance to have a more straight forward and informative discussion with your client. You can fill in the health check questionnaire before or during a meeting, whichever works best for you. It opens up a conversation around the business, getting them to think about where the money would come from if something happened to a key person in their business. You can find this and other support tools on our business protection website - aviva.co.uk/adviser/business Find new clients 1. Do your research For a small price, you can get information from Companies House ( about the businesses you want to target. Every company must submit yearly returns and a set of accounts, which you can get from Companies House. This will help you decide where to focus your efforts. You can find out all of this information about a company: l the business name and address l the type of business l the name and address of the company secretary l the capital position of the company l the profit and loss accounts l the articles of association. What to look for l A profitable company, where the success of the business may be down to a few key individuals, often small or medium sized businesses. l A negative balance sheet, which may highlight the need for business protection because the company has one or more loans. Business protection would prevent one partner or director (guarantor) from becoming liable for all the debts and costs of the business. It would also protect their estate from being asked to cover the debt. l The profit and loss accounts can give you a wealth of information you can work with. You can see all the essential facts: the profit that needs protecting, the liabilities that need covering, and the people who need protecting. 2. Examine your local businesses Many small or medium local businesses depend on a small number of employees for their profit and success. Take a close look at the type of businesses near you locally and at industrial parks and think about why they d need business protection. You ll probably also find it easier to offer continuous service to local businesses. With sole traders, the business tends to rely on one person for its activity and success. If they died or became critically ill, what would happen to the business? What would happen to that person s family, who may rely on them financially? A business protection policy covers the business loans. If the policy included critical illness cover, it would also give the sole trader time to recuperate without worrying about money. Firms like these may not realise that they d benefit from business protection. They re unlikely to approach you, so it s up to you to seize the initiative and talk to them about how you can help them protect their business. Top tip Plan how you re going to approach potential new business clients carefully. Picking the right time could be crucial to your success. For example, don t approach them during their busiest time of year likely to be the end of the tax year or financial year as you re likely to find it difficult to get an appointment with them. 23

24 3. Reach out Think outside the box to build up your list of prospective business protection clients: l Create a campaign to increase awareness of business protection in the local business community. You could also consider sending out a newsletter to promote your services. l Obtain referrals from existing clients and have them advocate your services to new clients. Join and take part in at least three organisations or associations which may have members who have a business protection need and could use your services. l Buy a mailing list from these organisations. l Use social media to spread the word about your services start tweeting, join or start using LinkedIn, post a Facebook advert with endorsements from your existing clients. l Use Aviva s prospecting template to target new clients you ve identified as possibly having a business protection need, maybe to cover business loans or to protect a key person. You can download the template from our business protection website and use it for both letters and s to potential clients. 4. Make more professional connections The more professional connections you can make, the more potential sources you have for new business. Solicitors and accountants are prime connections as they have many business clients. When you introduce yourself to a professional contact, try positioning it by pointing out that it s in their best interests to suggest your services to a client. After all, if their client s business fails, the solicitor or accountant loses that client. That s less likely to happen if their clients have business protection in place to cover the death or critical illness of a key person. It could happen to you Nobody likes thinking about illness and death, so one of the biggest challenges you ll face is persuading people that the worst could happen to them. So, here s something you could use to help get the message across to your prospective clients about how important business protection can be to their firm. As the chart below shows, the chances of death in a company are much higher than they may think. In a business partnership of two 35 year old male non-smokers, there s around a 13% chance that one of them will die before age Age Number of lives % 14% 20% 25% 31% 52% 35 7% 13% 19% 25% 30% 51% 40 7% 13% 18% 24% 29% 49% 45 6% 12% 17% 23% 27% 47% 50 6% 11% 16% 21% 25% 44% Tables based on TMN00 ultimate mortality. Figures are indicative, as actual mortality of insured lives will vary depending on health and lifestyle factors. l Use Aviva s exclusive Marketing Mentor to help you build your brand, utilise social media, get more value from your existing clients and find new profitable clients. Speak to our protection sales & support team to get your copy.

25 Sales support We ve got all the tools and support you ll need to identify potential business protection clients. Comprehensive sales literature Everything you ll need to sell and set up business protection, including FAQs for each type of protection, key features and guides to life and critical illness cover, plus our specimen agreement template. Business protection video Our specialist talks about business protection, taking you through the opportunities it offers you and the key things for you to consider. Starting the conversation Use our prompt cards to kick start your conversation with your prospective clients and identify their business protection needs. Business protection financial health check questionnaire A simple form to help you capture key information about your potential client s company. Premium equalisation calculator Quickly and easily share the premiums fairly between directors and partners in line with their individual share in the business. Contacting potential clients Generate interest amongst potential customers with our professionally drafted prospecting template. Download it now and use it for both letters and s. Call our protection sales and support team on They can help you with any questions you have. They can also arrange for you to get printed copies of any of our business protection literature, including our business protection pack. 25 Printed sales support Online support Head online to find more help with business protection at: aviva.co.uk/adviser/business

26 Get in touch Our dedicated protection sales and support team can answer any queries you have and provide any help you need to sell business protection. Call Visit aviva.co.uk/adviser/business 26

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28 Aviva Life Services UK Limited. Registered in England No Rougier Street, York, YO90 1UU. Authorised and regulated by the Financial Conduct Authority. Firm Reference Number aviva.co.uk PT /2014 Aviva plc