Business Protection Insurance Ireland

Protect the people, ownership and financial stability behind your business

A business may depend heavily on a small number of directors, shareholders or employees.

If one of those people dies or becomes seriously ill, the financial effect can extend far beyond the individual and their family. Revenue may fall, customers may leave, loans may need to be repaid and the future ownership of the company may become uncertain.

Business protection insurance helps a company prepare financially for the death or serious illness of an owner, director, shareholder or key employee.

At Dooley Insurance Group, we provide business protection advice to Irish companies, partnerships, family businesses and professional practices.

We help identify the people and financial risks that need to be protected before reviewing the options available through our agency appointments.

Arrange a Business Protection Review

What is business protection insurance?

Business protection insurance is a general term covering several policies designed to protect a business against the financial consequences of losing an important person.

It can include:

• Key person insurance
• Shareholder protection
• Partnership protection
• Business loan protection
• Personal guarantee protection
• Corporate life insurance
• Corporate specified illness cover
• Executive income protection

The correct type of cover depends on the company structure, ownership, borrowing, profitability and the financial role of each insured person.

Business protection is not one standard policy. It is a financial strategy built around the risks within a particular business.

Why is business protection important?

A business may be profitable and successful but still financially vulnerable.

The death or serious illness of a key person could cause:

• Loss of revenue
• Loss of important customers
• Delays in completing contracts
• Reduced confidence from lenders
• Difficulty replacing specialist knowledge
• Recruitment and training costs
• Business loan repayments
• Cash flow pressure
• Disputes over company ownership
• Unplanned involvement from a deceased shareholder’s family
• The forced sale of the company
• Closure of the business

Insurance cannot replace the experience, relationships or leadership of an important person.

It can provide capital to help the business respond, continue trading and make more considered decisions.

Who should consider business protection?

Business protection may be appropriate for:

• Limited companies
• Partnerships
• Family businesses
• Professional practices
• Medical and dental practices
• Construction companies
• Retail businesses
• Technology companies
• Consultants
• Financial and legal firms
• Agricultural businesses
• Companies with substantial borrowing
• Businesses dependent on one director
• Companies with two or more shareholders
• Businesses preparing for succession

If the loss of one person could seriously affect revenue, ownership or the ability to continue trading, that risk should be assessed.

Key person insurance

Key person insurance protects a business against the financial effect of losing an employee, director or owner who is particularly important to its success.

A key person may be someone who:

• Generates a significant proportion of revenue
• Holds essential technical knowledge
• Manages important customer relationships
• Has specialist professional qualifications
• Leads the management team
• Secures contracts
• Is closely connected to business finance
• Is essential to daily operations
• Would be difficult or expensive to replace

The company normally owns the policy, pays the premium and receives the benefit following a valid claim.

The payment can provide working capital while the business responds to the loss.

What can key person insurance cover?

A key person policy may be arranged to help address:

• Loss of profit
• Recruitment costs
• Training costs
• Temporary management
• Reduced revenue
• Customer retention
• Loan repayment
• Cash flow pressure
• Contract disruption
• Business reorganisation
• Specialist replacement costs

The amount of cover should be based on the financial effect of losing the key person rather than a convenient round figure.

How is key person cover calculated?

Several methods may be used when assessing an appropriate level of key person cover.

These can include:

• A multiple of salary
• A multiple of business profit
• The key person’s contribution to revenue
• Cost of recruiting a replacement
• Cost of training and transition
• Outstanding business borrowing
• Expected period of disruption
• Loss of major customers or contracts

The insurer may require financial evidence to support the amount of cover requested.

The calculation should be documented and reviewed as the business grows.

Key person life insurance

Key person life insurance pays a benefit to the company if the insured key person dies during the policy term and the claim is valid.

The payment can help the company maintain cash flow, recruit a replacement, repay debt or manage a period of disruption.

The company is generally the policy owner and beneficiary.

The ownership, purpose and tax treatment of the policy should be established clearly before cover is arranged.

Key person specified illness cover

A business can experience significant disruption even where a key person survives a serious illness.

The individual may be unable to work for an extended period or may return with reduced responsibilities.

Key person specified illness cover can provide a lump sum if the insured person is diagnosed with an illness listed in the policy and meets the required medical definition.

The payment may help the company fund:

• Temporary management
• Replacement staff
• Reduced business revenue
• Loan repayments
• Recruitment
• Operational changes
• A period of recovery

The policy only covers the illnesses and definitions listed in the contract.

Shareholder protection insurance

Shareholder protection helps the remaining owners of a company purchase the shares of a shareholder who dies or, where included, suffers a qualifying serious illness.

Without a plan, the deceased shareholder’s shares may pass to their estate or family.

The family may inherit an interest in a business they do not understand or wish to manage. The remaining shareholders may want to purchase the shares but may not have the personal funds required.

Shareholder protection combines insurance with an appropriate legal agreement to create a clearer process for transferring ownership.

How does shareholder protection work?

A shareholder protection arrangement will generally involve:

• Valuing each shareholder’s interest
• Agreeing how ownership should transfer
• Arranging appropriate insurance
• Establishing who owns each policy
• Putting a legal agreement in place
• Reviewing the arrangement regularly

Following the death of a shareholder, the insurance benefit can provide funds to purchase the shares from the deceased person’s estate.

The estate receives financial value for the shares, while the remaining shareholders can retain control of the business.

The exact structure will depend on the number of shareholders, company constitution, existing agreements and tax considerations.

Why shareholder agreements matter

Insurance alone does not guarantee that shares will be transferred.

A separate legal agreement may be required to establish the rights and obligations of the remaining shareholders and the deceased shareholder’s estate.

The agreement may address:

• How the shares are valued
• Who has the right to buy
• Who has the right to sell
• When the transaction takes place
• How the insurance proceeds are used
• What happens if the insurance payment differs from the share value
• Treatment of serious illness
• Future changes in ownership

A solicitor should prepare or review the legal agreement. Financial, legal and tax advice must work together.

Partnership protection

Partnership protection is designed for businesses operated by two or more partners.

If one partner dies, their share of the business may pass to their estate. The remaining partners may not have the money to purchase that interest.

A partnership protection arrangement can provide funds to help the surviving partners buy the deceased partner’s share, subject to the agreed legal structure.

The arrangement should consider:

• Partnership ownership
• Business valuation
• Each partner’s share
• Existing partnership agreement
• Policy ownership
• Cross options or purchase agreements
• Tax treatment
• What happens following serious illness
• How the business will continue

The partnership agreement should be reviewed alongside the insurance.

Business loan protection

Business loan protection can provide funds to repay or reduce commercial borrowing following the death or serious illness of an insured owner, director or key person.

It may be considered for:

• Business loans
• Commercial mortgages
• Equipment finance
• Director loans
• Development finance
• Working capital facilities
• Other business borrowing

A lender may require insurance as a condition of finance, but the business should also consider the wider financial effect of losing the person connected to the debt.

Personal guarantee protection

A director or business owner may provide a personal guarantee for company borrowing.

If the company cannot repay the debt, the lender may seek repayment from the guarantor or their estate, depending on the guarantee and circumstances.

Insurance may help provide funds to address borrowing connected to a personal guarantee.

The loan agreement and guarantee should be reviewed by a solicitor so that the legal liability is clearly understood.

Business protection for family businesses

Family businesses face particular succession risks.

Ownership, management and family relationships are often closely connected.

If a founder or family shareholder dies unexpectedly, questions can arise around:

• Who owns the shares
• Who will manage the business
• Whether family members want to remain involved
• How non working family members will be treated
• Whether the company can afford to purchase shares
• How the deceased person’s family will receive financial value
• Whether the business needs to be sold

Business protection can provide funding, but it must sit within a wider succession plan.

That plan may include shareholder agreements, wills, tax advice, business valuation and clearly defined management responsibilities.

Business protection for professional practices

Medical, dental, legal, accountancy and consultancy practices can depend heavily on the qualifications and client relationships of individual partners or directors.

The loss of a professional may lead to:

• Reduced billable income
• Loss of clients
• Regulatory or licensing difficulties
• Recruitment costs
• Increased workload for remaining partners
• Disruption to ongoing cases or treatment
• Ownership disputes
• Pressure to sell the practice

Business protection should reflect both the commercial value of the person and the practical cost of replacing their professional contribution.

Executive income protection

Executive income protection is arranged by a company for an eligible director or employee.

It can provide a replacement income if the insured person is unable to work due to an eligible illness or injury and meets the policy definition of incapacity.

Depending on the policy, cover may also be available for certain employer pension contributions or other employment benefits.

Executive income protection is designed to protect the individual’s income. It is not a replacement for key person insurance, which protects the company.

Both risks may need to be considered separately.

Business protection and succession planning

Succession planning determines how ownership and control of a company will transfer when an owner retires, dies or becomes unable to continue working.

Insurance can provide the money required to complete an agreed transfer, but it does not replace the need for a succession plan.

A complete plan may include:

• Business valuation
• Shareholder protection
• Key person insurance
• Partnership protection
• Wills
• Shareholder agreements
• Company constitution
• Tax planning
• Management succession
• Family discussions
• Retirement planning

The earlier succession planning begins, the more options the owners are likely to have.

Valuing a business for protection purposes

The amount of shareholder or partnership protection required will depend on the value of the relevant ownership interest.

A business valuation may consider:

• Profit
• Turnover
• Assets
• Liabilities
• Cash flow
• Recurring revenue
• Intellectual property
• Customer concentration
• Market conditions
• Comparable business sales
• Ownership percentages

A professional business valuation may be required.

The insured amount and legal agreements should be reviewed regularly as the value of the company changes.

Tax treatment of business protection

The tax treatment of business protection depends on:

• Purpose of the policy
• Policy ownership
• Who pays the premium
• Who receives the benefit
• Company structure
• Relationship between the insured parties
• How the insurance proceeds are used

Premiums are not automatically deductible as a business expense, and insurance proceeds are not automatically tax free in every circumstance.

Specific financial, accounting, tax and legal advice should be obtained before the arrangement is completed.

How much business protection is needed?

The appropriate amount depends on the financial risk being insured.

A business protection review may assess:

• Business value
• Ownership percentages
• Profit contribution
• Revenue contribution
• Outstanding loans
• Personal guarantees
• Recruitment costs
• Expected period of disruption
• Existing cash reserves
• Existing insurance
• Cost of purchasing shares
• The company’s ability to continue trading

Different policies may be required for different risks.

Shareholder protection should not be used as a substitute for key person cover, and key person insurance may not provide the funds required to purchase shares.

Reviewing existing business protection

Business protection should be reviewed regularly.

A review may be required when:

• Business value increases
• New shareholders join
• A shareholder leaves
• Ownership percentages change
• The company takes on new borrowing
• Directors provide personal guarantees
• A key employee joins or leaves
• Profit or turnover changes significantly
• The company expands
• A new partnership agreement is signed
• Succession plans change
• A business sale is being considered

An outdated policy may no longer reflect the company’s value, ownership or financial exposure.

Our business protection process

Understanding the business

We review the company structure, ownership, key people, borrowing and financial dependencies.

Identifying the risks

We assess the financial effect of losing a shareholder, director, partner or key employee.

Calculating the cover required

We establish a reasonable level of cover based on business value, financial contribution, borrowing or replacement costs.

Reviewing the available policies

We compare suitable options available through our agency appointments and explain the benefits, costs and conditions.

Coordinating professional advice

Where required, we work alongside the company’s accountant, solicitor or tax adviser to ensure the insurance supports the intended structure.

Reviewing the arrangement

Business protection should be updated as company value, borrowing, ownership and key personnel change.

Why choose Dooley Insurance Group?

Dooley Insurance Group has supported Irish companies, business owners and families since 1957.

Our financial services team provides advice across key person insurance, shareholder protection, business loan protection, executive income protection and succession planning.

We take the time to understand the company and the financial risk before discussing the policies available through our agency appointments.

Our financial services team includes Conor Swan, QFA, RPA and SIA, Director, and David Renwick, Senior Financial Consultant.

With offices in Naas, County Kildare and Edenderry, County Offaly, we provide business protection advice to companies locally and throughout Ireland.

Business protection questions

What is business protection insurance?

Business protection insurance provides financial support following the death or serious illness of a business owner, shareholder, director, partner or key employee.

What is key person insurance?

Key person insurance is owned by a business and provides a benefit if an insured person who is important to the company dies or suffers another covered event.

Who is considered a key person?

A key person may be anyone whose absence would cause significant financial loss, operational disruption or difficulty retaining customers and contracts.

What is shareholder protection?

Shareholder protection provides funding that can help the remaining shareholders purchase shares from the estate of a deceased shareholder.

Is a shareholder agreement still required?

Insurance provides funding, but an appropriate legal agreement may be needed to establish how and when the shares will be bought and sold.

What is partnership protection?

Partnership protection can provide funds to help surviving partners purchase a deceased partner’s interest in the business.

What is business loan protection?

Business loan protection provides a benefit that may be used to repay or reduce business borrowing following the death or serious illness of an insured person.

Can a company pay for business protection?

A company may own and pay for certain business protection policies. The correct ownership and tax treatment depend on the purpose and structure of the cover.

Are business protection premiums tax deductible?

Not automatically. Deductibility depends on the purpose, ownership and circumstances of the policy. Advice should be obtained from the company’s accountant or tax adviser.

Are business protection payments tax free?

Not in every situation. Tax treatment depends on policy ownership, the recipient and how the proceeds are used.

How much key person cover does a business need?

Cover may be based on profit contribution, revenue, salary, recruitment costs, borrowing and the expected period of disruption.

How are shares valued for shareholder protection?

Share value may be determined through an agreed formula, professional valuation or another method stated in the shareholder agreement.

Does business protection cover serious illness?

Specified illness cover may be included or arranged separately, subject to the illnesses and medical definitions contained in the policy.

How often should business protection be reviewed?

Cover should be reviewed regularly and whenever company value, ownership, borrowing or key personnel change.

Arrange a business protection review

The loss of one person should not place the future of an otherwise successful business at unnecessary risk.

A structured business protection plan can provide the funding needed to protect cash flow, ownership, borrowing and long term continuity.

Contact Dooley Insurance Group to arrange a business protection review.

The information on this page is general and does not constitute personal financial, legal or tax advice. Cover is subject to medical and financial underwriting, policy definitions, exclusions, terms and conditions. Legal, accounting and tax advice may be required when structuring business protection.

Dooley Insurances Ltd t/a Dooley Insurance & Mortgage Brokers and Dooley Insurance Group is regulated by the Central Bank of Ireland.