Regardless of the current Coronavirus epidemic, it’s important to have everything in place in the event of a prolonged illness or even death. We know it’s a macabre topic, but spending some time now getting things in place could be hugely beneficial for your family should the worst happen.
Income protection insurance
If you’re unable to work for an extended period of time due to illness or injury, an income protection insurance policy can support you.
If you already have a policy, we recommend reviewing your policy documents to see if you’re covered for coronavirus – and in particular how long the ‘waiting period’ is. The waiting period determines how long you need to be ill for before payouts commence. If you have a short waiting period (of a few days), your policy may cover you should you need to self-isolate and be unable to work as a result.
The income protection market has come to a near standstill as a result of coronavirus. If you don’t have a policy you may find it difficult to take one out now, and most will now have specific exclusions for coronavirus.
If you do manage to purchase a policy, perhaps looking ahead beyond coronavirus, then it is possible to purchase corporate income protection insurance, allowing you to pay the insurance premium out of your company funds rather than your taxed income. HMRC allows you as a company to choose the way you are taxed for the insurance cost. Either you can declare it as a benefit in kind and pay tax on the premium or decide not to declare it and instead pay tax on any associated pay-outs in the event of a claim. An important part of your policy will be your waiting period – the shorter the waiting period, the higher the premiums. Be sure to link this to your buffer / war chest to ensure you have enough to cover you through short periods of illness.
When setting up any insurance it’s always best to speak to your policy provider to discuss any tax implications of the policy being recommended.
These days, death in service life insurance is a common benefit for permanent employees. Now, as a small limited company, it’s possible to provide the same level of cover to directors and shareholders via ‘relevant life policies’ (RLPs).
An RLP is a tax-efficient life policy designed for small business, and you can normally insure up to 20 times your income (including dividends). It’s one of the most tax-efficient ways of providing life cover for Directors and Shareholders. That’s because, unlike personal life insurance, an RLP is paid for through your limited company rather than by you as an individual – so the costs offset corporation tax. You can read more about RLPs here.
If you already have an RLP, or another form of life insurance, you may wish to check with the insurer that death due to coronavirus is covered. Many insurance companies now have dedicated pages with details of this.
Private medical insurance
Given the current coronavirus crisis, most private medical treatments have been suspended. However, if you have a private medical insurance policy, you may find that your policy provides you with a daily cash pay out should you be admitted for treatment in an NHS hospital. This could provide some income support should you be hospitalised as a result of coronavirus. Contact your insurer for details.
Check your will
Finally, as a shareholder of a limited company, it’s important to have a will in place to ensure that your specific wishes are carried out should you die. You may need to mention the shares in your company and who you would leave them to. This is of particular importance if you are an unmarried couple. We recommend that you talk to a specialist, and you should also consider approaching an inheritance tax planning specialist should you have complex financial affairs.