Mr D N – Milton Keynes

  • Business insurance
  • 25/03/2020

Mr N, a painter and decorator with his own business, had existing protection set up on a personal basis to protect his mortgage should either he or his wife pass away. Mr N wanted to see how cover could be improved. We arranged for a free and full protection review for Mr N with our specialist insurance partner.

It was determined that, in his situation, if he fell sick or had an accident his subcontractors could “fill his shoes” and he’d still be able to take a wage. So, in Mr N’s eyes sickness/accident cover would not cause a financial impact but of course his demise would. Being sole shareholder of the business, all shares would pass to his estate so our partner advised that this did not need addressing – had there been other shareholders involved this would have been a different outcome.

Upon speaking with our client, our insurance partner had determined business borrowing. The tax position on this was explained to Mr N. He was made aware that protection taken out with family as the intention, couldn’t be used to cover business borrowing without tax disadvantages to both the business, but also to the widow by way of their IHT standpoint at that time. Mr N advised that this was not a concern.

As a result, our partner determined 2 main concerns.

  • The mortgage
  • Being the main breadwinner and with twins in their 20’s still not fully financially independent, there’d be a shortfall

A quick health & lifestyle questionnaire determined his mortgage was better protected with his existing cover so our partner focused on the top up. What was discovered additionally was that being director of a Ltd business, he’d been missing a trick on his protection. Our partner was able to rebroke the existing joint plan and helped increase his level of cover whilst allowing him to pay for it in a much more tax efficient way.

This resulted in Mr N setting up a relevant life plan to ensure if he were to pass away, his existing cover would cover the mortgage and this extra would take the financial strain away from the family. A relevant life policy is personal life insurance which pays directly to the family upon death. He was able to pay for this from his pre-taxed earnings, instantly saving him around 20%. This spend also reduced the annual corporation tax bill. Additionally, HMRC see this as an allowable expense meaning his accountant would be able to further offset against profits each year saving an extra 19%.

Most importantly, cover was arranged alongside the correct trust for his situation. This will ensure the family won’t need to wait for probate to be granted to access the funds when they need it most, and there would be no IHT considerations.

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