Post on 15-Jan-2016
Solutions to cover the protection spectrum
Business Assurance workshop
Welcome and introduction
The Business Protection solution
PruProtect product spectrum
2
3
1
Sections
Welcome and introduction
The Business Protection solution
PruProtect product spectrum
Sections
2
3
1
1. People are living longer but in ill-health
2. Increased burden on the individual
Key trends impacting protection
3. Regulatory change
4. Increase in owner managed business
5. Change in health and wellness
New markets
Increasing need for protection cover
Opportunity for intermediaries
1. People are living longer but in ill-health
2. Increased burden on the individual
3. Regulatory change
4. Increase in owner managed business
5. Change in health and wellness
Key trends impacting protection
Helping you cover the full spectrum of your clients’ needs
Accelerator Family Income Cover Education Cover Whole of Life Cover
Personal Protection
Business Cover Relevant Life Policy
Business Protection
Vitality Plus
7 new opportunities
Business Protection, an opportunity
Opportunity to grow your business financially through new revenue streams.
Opportunity to differentiate yourself from the rest of the market.
PruProtect is committed to supporting you as we enter a new market together.
Are you open for business?
Understanding the business protection market
Recession stimulates SMEs: encourages entrepreneurial owner managed businesses
SME footprint: 4.8 million business enterprises in the UK at start of 2008
March 2010: 2.10 million enterprises registered for VAT / PAYE
SME growth rates: Over 500,000 people start up their own business every year
SMEs are significant economic contributors: employ 60% of the private sector workforce
Corporate business = 59%of total business
Sole traders = 25% of total
Partnerships= 16%
Source – BIS Department for Business Innovation and Skills 2010
A large and potentially lucrative market
Need to stimulate client into action
Need to categorise market
Need to understand the business solution
Need to know how to apply those solutionsShowing you
the money
Business Protection – taking the next step
Three Key Questions
What are the barriers?
Why isn’t more business being done?
How can we change this?
1. What are the barriers?
Business OwnerInsufficient anxietyCost
AdvisorsDifficultyConfidenceProfitabilityLow priority“Out of practice”Low collaboration
Other professionalsNon coreLow trustInsufficient anxietyLow collaboration
2. Why isn’t more business being done?
Important UnimportantUnimportant
UrgentUrgent
Non-urgentNon-urgent
Success in the protection market requires proactivity
Make it: Real
Relevant
Accurate
Professional
Anxiety = ActionCreating a clear picture of the consequences of not acting
As a survivor With a serious
illness/ disabilityWho dies leaving a dependent family
arranges for implementation / execution
How can we change this?
As a survivor With a serious
illness/ disabilityWho dies leaving a
dependent family
Adviser
creates solution
through
Own business Solicitor Accountant
What do you add? The value of advice...
Understands client and client objectives
Assesses and establishes risk
Explains risk
Creates solution
Understanding & Clarity: The key to the business market
How to get ‘business risk’ on
the agenda
How to construct legal and tax
effective solutions
How to explain (and prove) “what
would happen if...”
How to deliver the solutions
How to communicate
Protection objective:
Right money Right hands Right time
However, as with all financial planning, providing cash is only half the story.
That cash needs to be provided at the right time and, to be tax efficient, in the right way.
Creating a solution to meet your client’s objectives with maximum tax efficiency
Business Protection planning
Business
Why your clients need your help
Continuation Solution
Need cash to meet: repayment of loans loss of profits recruitment loan accounts
Why your clients need your help
Business
Continuation Solution
Need cash to meet: repayment of loans loss of profits recruitment loan accounts
Succession Solution
Need cash to enable: purchase of share of deceased / ill owner
Why your clients need your help
Business
Continuation Solution
Need cash to meet: repayment of loans loss of profits recruitment loan accounts
Succession Solution
Need cash to enable: purchase of share of deceased / ill owner
Relevant Life Cover
Need cash for: family of key employee on death
The PruProtect Solution
The PruProtect solution
Appropriate for: Sole trader Partnership (or limited liability partnership) Limited company
Offering a complete solution
TrustsOption
agreementsGuidance and tools
The PruProtect Solutions
PruProtect Plan – Life Cover & Serious Illness Cover(Discretionary Trust)
PruProtect Business Protection Plan – Life Cover & Disability Cover for Business (Business Trust)
Relevant Life Cover – Life Cover only(Discretionary Trust for use with a Relevant Life Policy)
Terminology – getting you started
Gift With Reservation (GWR) Previously Owned Asset Tax (POAT) Inheritance Tax (IHT) Nil rate band (325K) Chargeable Lifetime Transfer (CLT) Income Tax (20% / 40% / 50%) Corporation Tax (26%) Capital Gains Tax (28%) Entrepreneurs relief (reduces CGT to 10%) VAT registered companies (73K trading income) Business property relief (own company for 2 years can pass on to
family without IHT as no transaction has taken place)
Sole Trader
Business Continuation – Key Person Cover
The Sole Trader: The most key person But frequently it is protection for family/dependants
IncapacityDeath
Family and dependants
Owner
£ £ £ £
Why your clients need your help
Business
Continuation Solution
Need cash to meet: repayment of loans loss of profits recruitment loan accounts
Where does the money come from if something bad and unplanned happens giving rise to financial loss?
Owner Employee
Key Person Cover
An insurance policy taken out by a business to compensate that business for financial losses that would arise from:– the death – or extended incapacity
of the member of the business specified on the policy. The aim is to compensate the business for losses and facilitate
business continuity. An employer may take out a key person insurance policy on the life
or health of any employee whose knowledge, work, or overall contribution is considered uniquely valuable to the company.
Do I need Key Person Cover?
Ask the following questions: If they went tomorrow would there be a negative impact on the
business? What effect will this have on clients, sales, turnover and profit? Do they have a unique skill or knowledge that cannot easily be
replaced? Is there someone already on the team who could do their job? If there is a team member who can take over, who will do their
job? Will you have to recruit a replacement? If you have to recruit how much will it cost, how long will it take
and how will you pay them?
A question of protecting (compensating)
the family on death.
Cover on the life of a Sole Trader
Death BenefitsDeath
Benefits
Policy
Discretionary Trust
Split trust to meet serious illness and death benefit needs:
SI DB
Trust
Cover on the life and serious illness of the Sole Trader
Life Assured Beneficiaries
No:• GWR• POAT
Policy
NB:• MPA• PLC
OwnerOwner
BusinessBusiness
Child AChild A
Sole Trader Example
OwnerOwner
BusinessBusiness
Child AChild A
Sole Trader Example
SpouseSpouse
TrustTrustPolicyPolicy
OwnerOwner
BusinessBusiness
Child AChild A
Sole Trader Example
SpouseSpouse
TrustTrustPolicyPolicy
Child B/CChild B/C
TrustTrustPolicyPolicy
Or one policy in one Discretionary Trust with a Letter of WishesOr one policy in one Discretionary Trust with a Letter of Wishes
Tax Considerations
Premiums not deductible Premiums are gifts for IHT but;
– £3,000 annual exemption– normal expenditure out of income exemption
Taxation of the policy proceeds– Usually completely tax free
Owner
POLICY
Deductible
Key Employee
Taxable/TaxFree?
If an employee is key?
Sole trader - Summary
No
YesYes
To employeesPossible buy out need – life of another policy and/or policy in discretionary trust as family compensation
To employeesPossible buy out need – life of another policy and/or policy in discretionary trust as family compensation
To family member?Financial compensation for other family members-policy in discretionary trust
To family member?Financial compensation for other family members-policy in discretionary trust
Financial compensation for family – policy in discretionary trust
Financial compensation for family – policy in discretionary trust
Will the business continue on
death?
Will the business continue on
death?
Partnerships
Business continuation
Business succession
Cash for the business on the death or illness of a
keyperson
Money for the continuing partners to “buy out” a deceased or seriously ill
partner
Partnerships – Two key needs
Partners as key people
When Partners are key…?
remember a partnership is not recognised as a separate legal entity
each partner effects own policy under business trust
surviving partner(s) make loans to the business to cover the business need
Business continuation
Cash for the business on the death or illness of a
keyperson
Business
£
Partners’ loan
Premiums – not deductible
Sum assured – tax free
A
Trust
P
Partnerships Business Continuation Solution
Partnerships Business Continuation Solution
B
£
C
£
Partners
Policy
Key employeeA
Life of another
And if employees are key?
Premiums – deductible
Sum assured – taxable
The Anderson tests
Anderson Rules – how are premiums taxed?
Sir John Anderson – Chancellor of the Exchequer 1944
Employer / Employee Cover loss of revenue / trading profits / income Reasonable sum assured Short / Reasonable term (originally 5 years however HMRC
accept retirement age as reasonable)
Note: Must satisfy Anderson rules for tax relief on premium
No premium tax relief if: Policy set up to cover a loan (Capital loss) Major shareholder (above 5%)
Employee(s) Partners
Determine potential cash need
• Loan repayment
• Profit replacement
• Other
• Use guidance
• Use tools
• Use guidance
• Use tools
• LOA policy
• No trust required
• Own life policy
• Business trust
Who is key?
Partnership Continuation Summary
Completing the picture – LLPs
LLPs
(Separate legal entity)
As for partners As for companies
Limited Liability Partnerships
Common in accounting and legal practices
Liability is the same as companies ie: limited
Taxed as partners are:
LLP
Policy on Life of Key Person
Benefits
Limited Liability Partnerships - An option
LLP recognised as a separate legal entity therefore has contractual capacity
LOA policy (Life of another)
No trust required
Premiums – non deductible
Proceeds – tax free
Business continuation
Business succession
Cash for the business on the death or illness
of a keyperson
Money for the continuing partners to “buy out” a deceased or seriously ill
partner
Partnerships – Two key needs
Business succession
Money for the continuing partners to “buy out” a deceased or seriously ill
partner
Partnerships – Business Succession
What needs to be covered:
Simply the value of the shareholding.
What needs to be covered:
Simply the value of the shareholding.
Partner(Father)
Business InterestPolicy in
Discretionary trust
SonNo IHT BPR
Spouse or non-business relatives:
IHT efficient
Example: Father and son business
Normally a question of compensation
Family Partnership Succession
Buy out on death (or serious illness)
Continuing partners retain ownership
Deceased partners family receive financial compensation
Buy / sellBuy / sellPartnerships agreementPartnerships agreement
So that…….
Surviving partners/shareholders can continue the business without unwanted or unqualified interference from third parties.
The deceased’s estate receives monetary value of the shareholding as recompense
So that…….
Surviving partners/shareholders can continue the business without unwanted or unqualified interference from third parties.
The deceased’s estate receives monetary value of the shareholding as recompense
OWNER A
LPRs
FAMILY(No IHT)
Business interest
AGREEMENT (D/O)
No CGT
CONTINUING OWNERS
CashWill
POLICY
BUSINESS TRUST
Business Succession on Death
Double Option Agreement
Option to continuing partners/ legal personal representatives
If one side exercises option other side is bound
Price Market value; fair but keep cover up-to-date Specified value; certainty but needs review
No family beneficiaries
All partners in business
Settlor
Other partners in appropriate shares
But if settlor leaves business, benefits revert to him/her
The Trust
BeneficiariesDefault
beneficiaries
Business Succession on Serious Illness
The choices
No agreement
Double option
Single option
Owner A
Continuing owners
B & C
Single option agreement
CashShares
Care:
Serious Illness
Business Succession on Serious Illness
CGT
FutureIHT
Disability Cover for Business
Designed specifically for Business Protection
Full benefit paid for 48 conditions
Whole of body coverage (9 body systems)
Permanent disability (own occupation)
The following can be selected: Life Cover Life Cover and Disability Cover
for business Waiver of Premium on Incapacity
Automatically included: Guaranteed Insurability Benefit Immediate cover Vitality
Why Disability Cover for business
Why your advisers should recommend Disability Cover for Business
A unique product – specifically designed to protect your client’s business from the financial impact of an illness
Add value to your clients – recommend a product that is tailored to the needs of their business
Opportunity to maximise revenue – upsell on a Business Protection Plan
Supports advice-led solution – recommend a product to your clients that they cannot buy direct
Why your clients should buy Disability Cover for Business
Peace of mind – benefit is paid on diagnosis of a disabling condition Relevant Cover – We cover specific illnesses that are likely to stop
your client from working, unlike traditional plans that cover a generic range of illnesses
Business succession planning – benefit can be used to buy- the disabled member’s share of the business
Business continuation planning – benefit can be used to fund additional resource ensuring that the business continues to trade if your client becomes disabled.
Why PruProtect’s Disability Cover for Business
Appropriate cover – whole of body coverage with benefit payable on diagnosis of one of the 48 disabling conditions
Affordable solution – with cover provided for disabling conditions rather than less severe illnesses’ the premiums are lower than traditional plans
Fair claims assessment – conditions based on objective medical definitions rather than a subjective assessment of a client’s ability to work which may be used in traditional plans
Guaranteed insurability options – cover can be increased without further medical underwriting following certain events such as a new or increased business loan or mortgage
Cover for large businesses – cover for up to £2,000,000 available
Business Protection needs are tightly defined
Whole of Body Coverage for 48 disabling conditions in 9 systems
Advanced cancer 8Cardiovascular 8Digestive 7Mental & behaviour disorders 2Musculoskeletal system 4Stroke & nervous system 9Renal disease 3Respiratory disease 5Permanent disability 2
Business Protection needs are tightly defined
Whole of Body Coverage for 48 disabling conditions in 9 systems
Advanced cancer 8Cardiovascular 8Digestive 7Mental & behaviour disorders 2Musculoskeletal system 4Stroke & nervous system 9Renal disease 3Respiratory disease 5Permanent disability 2
Why Disability Cover for business
Provides a cost-effective, simple and relevant solution
Life and DCB compared with Life and CICLife and DCB compared with Life and CIC
PruProtectPruProtect
Competitor ACompetitor A
Competitor BCompetitor B
Competitor CCompetitor C
Competitor DCompetitor D
Competitor ECompetitor E
Competitor FCompetitor F
Competitor GCompetitor G
Competitor HCompetitor H
Competitor ICompetitor I
Why Disability Cover for business
40bnSource – Exchange March 2011
Relevant Life Policies
A means by which an employer can provide:
lump sum protection for employee’s family via a discretionary trust in a highly tax-efficient way
A simple individual life policy with tax advantages
Relevant Life Policies
Benefits of a RLP
A perfect complement to
Business Protection
Premiums are a business expense for employer Premiums not taxed on employee Benefits are paid free of income tax No IHT if benefits paid to a discretionary trust Premiums not part of annual allowance Death benefit/terminal illness benefit not part of employee’s
lifetime allowance
Premiums are a business expense for employer Premiums not taxed on employee Benefits are paid free of income tax No IHT if benefits paid to a discretionary trust Premiums not part of annual allowance Death benefit/terminal illness benefit not part of employee’s
lifetime allowance
Relevant Life Policies – the rules
A Relevant Life Policy is specifically defined in
HMRC regulations
Only provides Life Cover
Only one life assured
Payable to an individual or a charity
Specific RLP Trust from outset
Does not acquire a surrender value
Policy ceases before the age 75
The main purpose of the policy must not be tax
avoidance
PruProtect RLP
Discretionary trust Life cover to age 75 at latest Terminal illness benefit Life cover/TIB ceases if employment ceases Option to effect personal cover without medical evidence on
ceasing employment Flexibility on appointing personal trustees after employee’s death
Discretionary trust Life cover to age 75 at latest Terminal illness benefit Life cover/TIB ceases if employment ceases Option to effect personal cover without medical evidence on
ceasing employment Flexibility on appointing personal trustees after employee’s death
The opportunity within the market
A different perspective
Need for Business Protection
Business Continuation– Key Person Cover– Locum Cover
Loan Protection– Business loans/mortgages
Succession Planning– Shareholder/Partnership Protection
Relative size of market for each need
Business Continuation
Succession Planning
Loan Protection
For further information
Service and support
Online tools – Value of business– Value of Key Person– Relevant Life Tax calculator
Dedicated technical support helpline
Dedicated microsite
Range of trust documents
Technical guides
Dedicated underwriting team
PruProtect’s full product spectrum
7 new opportunities
Helping you cover the full spectrum of your clients needs
Accelerator Family Income Cover Education Cover Whole of Life Cover
Personal Protection
Business Cover Relevant Life Policy
Business Protection
Vitality Plus
Marketing support
Thank you