business protection insurance

Business protection insurance can help businesses continue to trade if an owner or other person key to the business dies or becomes terminally or critically ill. Proceeds from the policy could help ensure that key individuals are replaced, debt is protected and shares from the deceased partner’s/director’s estate are purchased.

Many businesses across Ireland take the time to consider employment benefits, pension schemes or staff protection, yet the business itself can be overlooked. However, the business is pivotal to everything else. Without it, none of the other components would link together. Overlooking Business Protection Insurance may leave your business in a vulnerable state. Set out below are the 4 main pillars of Business Protection Insurance.

Business Protection Insurance cover allows you to put monetary arrangements in place to help protect your business financially following the death of you, or one of the leading figures in your organisation. With a policy in place, a lump sum is made available to help deal with bills as well as any unexpected costs that crop up as a result of your passing or the death of a key person. Should you or your colleagues have to face the worst case scenario, facing it with a Business Protection Insurance policy can make things that little bit easier financially.

Share Protection Insurance


In addition to the emotional distress and upset caused, the untimely death of a shareholder can, and often does, have severe financial implications for the surviving shareholders. Both the company and the next of kin may be faced with a number of challenges.

An ideal solution, from the other shareholders’ perspective, might be to buy back the deceased’s shares.

In the normal course of events the deceased’s shares in the company will become part of their estate. may therefore pass to a new shareowner, perhaps the deceased’s spouse or one of their surviving children. ey is could, depending on the circumstances and the individual, cause problems for the business, particularly if the deceased shareholder-owned a large percentage of the company.

Loss of control

If the deceased shareholder owned more than 50% of the company, their next of kin may automatically become the new majority shareholder. Depending on the circumstances of the new shareholder, they may wish to take over control of the company immediately, or they may wish to sell their shareholding to an external party.

In this circumstance the remaining shareholders will have limited control over such decisions. In all of these scenarios, neither the deceased’s estate nor the surviving Directors are placed in a very satisfactory position.

For example, the new share owner may not have in-depth experience of the business, or they may wish to move the company in a new or unwelcome direction. However, the remaining shareholders may be unable to raise the required capital, particularly in challenging times when nance and loans are hard to get. Or indeed, the next of kin may refuse to sell.

The next of kin

As well as the untimely death of a loved one and the emotional distress involved, the next of kin may also nd themselves facing some difficult decisions. They may for example, be in full time employment in another organisation and may have no interest in taking on the shareholder’s role, preferring instead to sell their shares for an immediate capital sum.

Potential difficulties in the sale of shares

The company’s Constitution may in fact give the other shareholders the right to block the sale of the shares to an outside party

Without any way to sell the shares on the open market at their true value, the deceased’s next of kin could be forced into a ‘fire sale’ of the shares to the other shareholders, at a lower price than that of the current market value.

Cash flow difficulties

The deceased’s salary will cease on death. If the shares are not sold, the next of kin may be left holding a ‘paper asset,’ particularly if they now own a minority holding in the company, producing little or no income. The cash flow problem could be exacerbated if the shares inherited also give rise to an immediate Inheritance Tax liability.


There is, however, a solution available that safeguards the future of your business in the event of the death of a colleague. Corporate Co-Director Insurance offers you a cost effective way:

To put the measures in place to protect the business.

To help enable the continued financial stability of your business.

To ensure the deceased’s next of kin receive a capital sum for the deceased’s shareholding.

Key Person Insurance

Despite their utmost importance, many business owners can fail to protect their organisations from the difficulties that might arise following the premature death of a ‘Keyperson’ within their organisation.

Business Protection Insurance

Immediate impacts on your company following the premature death of a Keyperson

  • Loss of profits. 
  • The repayment of Bank or company loans for which the deceased may have given a personal guarantee. • 
  • The requirement to immediately repay to the deceased’s estate any loans or capital sums provided by the Keyperson to the company. 
  • The loss of the Keyperson’s business contacts, jeopardising future sales. 
  • The postponement or delay of a specialised project which may be critical to the company’s future and which was managed by the deceased.

Did you know?

The chance of one Keyperson, in a firm with two Keypersons, dying before the age of 65 is 21%

The solution

Of course, no one wants to think about the death of their colleagues. That’s quite normal. But failing to protect your business from this possibility could have severe consequences for the financial health of your company. There is, however, a solution available. 

Keyperson Insurance offers you a cost effective option to put the measures in place now to safeguard your business in the event of the death of a key employee, and maintain its continued financial stability in the future.

So, what exactly is Key Person insurance?

Keyperson Insurance is Life Cover arranged by the company on the life of one or more key employees, who may or may not be shareholders. Their key skills are regarded as vital to the success of the company and their loss would have adverse financial effects for the organisation. 

Quite simply, with Keyperson Insurance, the employer of the Keyperson(s) pays the policy premiums and, in turn, the company receives a lump sum payment on the death of the individual insured under the policy. These proceeds can then be used in many ways.

How your company can use the proceeds

  • Pay off outstanding bank loans or any loans made by the individual to the company. 
  • Recruit and train a suitable replacement. 
  • Invest back into the business for improvement purposes.  
  • Protect the company against loss of profit.

While Keyperson Insurance of course cannot lessen the emotional blow and trauma caused by the death of a colleague, it can help to minimise the financial impact. 

In today’s uncertain world, that’s very valuable peace of mind.

Business case example

ABC Ltd, a thriving IT firm, wishes to insure their Finance Manager, Paul Smith, for €500,000 Life Cover to protect the company financially against any loss of profits in the event of his death.

How do you go about putting this cover in place and what’s involved?

As the company is paying the premiums for the Keyperson policy, it can obtain Corporation Tax relief on the premiums paid, provided the following four conditions are (and must be) met:

  • a) The sole relationship between the individual effecting the Life Cover and the Life Assured is that of employer and employee
  • b) The employee must have no substantial proprietary interest in the business (i.e. less than or equal to 15%). 
  • c) The insurance effected is intended to meet the loss of profit resulting from the loss of service of an employee, as distinct from       a capital loss. 
  • d) The policy is a Term Assurance contract with a term not exceeding normal retirement age. 

When these four criteria are met, you can obtain Corporation Tax relief on the policy premiums paid. When Corporation Tax relief is available on premiums paid (i.e. the four criteria are met) it also means that there will be a tax liability on any policy proceeds. When a claim is made, the policy proceeds are treated as a ‘revenue receipt’ and are therefore liable to Corporation Tax.

However, if you don’t meet the four criteria and the premiums paid do not qualify as a business expense, there may be no tax liability on the policy proceeds. In this case, when a claim is made, the policy proceeds are treated as a ‘capital receipt’ and may not be liable to Corporation Tax. 

Finally, it’s also important to note that if the premiums have not been deducted as an expense for Corporation Tax purposes when they meet the four criteria, the Revenue still reserves the right to tax the proceeds as a trading receipt, if they feel the purpose of the policy was to replace profits.

As it’s important you know exactly what taxation treatment will apply to your organisation prior to structuring a Keyperson Insurance arrangement, companies must consult their relevant independent Legal Adviser, Taxation Consultant and/or Financial Broker.

For example: ABC Ltd wishes to insure their Finance Manager, Paul Smith, for €500,000 Life Cover

Paul holds 3% of company shares and therefore does not have a significant proprietary interest in the company (i.e. he owns less than 15% of the company). 

All the other required criteria are also met, so the premiums will therefore qualify for Corporation Tax Relief. 

In the event of a claim being made, the proceeds will be taxed as a trading receipt, regardless of whether Corporation Tax Relief on the premiums is claimed. 

To ensure that at the time of a claim the policy proceeds required of €500,000 take the Corporation Tax liability into account, the Life Cover put in place needs to be ‘grossed up’. 

This means that ABC Ltd need to add the amount of the 12.5% Corporation Tax (current rate) to the amount of cover they want for Paul. 

So, €571,000 is the resulting Life Cover amount, with its premiums qualifying in full as a business expense.

After discussing their requirements with a Financial Broker, ABC Ltd selected Life Cover for five years of €571,000 — the anticipated loss of profits in the event of Paul’s untimely death. 

Having decided to take out the policy, on whom and for what amount, ABC Ltd then passes the appropriate ‘Board Resolution’, recording their decision to affect Life Cover on Paul. They then inform Paul of their decision and complete the appropriate application. 

Once the application has been accepted by the insurer and the first premium has been paid, the policy will then be issued.

In summary

  1. Decide who should be insured — Paul Smith, Finance Manager 
  2. Assess the level of cover required — €500,000 + €71,000 = €571,000 (anticipated loss of company profit in the event of Paul’s death) for five years, grossed up.
  3. Pass the appropriate Board Resolution 
  4. Advise the relevant Keyperson of the Board’s decision — Paul Smith 
  5. Complete the application and set up the required Life Cover 

Prior to structuring a Keyperson Life Insurance arrangement, companies must consult their relevant independent Legal Adviser, Taxation Consultant and/or Financial Broker.

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