Introducing renewable term for business protection
Andy Roberts, Technical Sales Manager
Friday 12 October 2018
Keeping it simple and straightforward is at the heart of what we do. We're always looking for ways to keep processes to a minimum and make the application journey as simple as possible for your clients. This is why we've introduced renewable term for our Business Protection cover.
So how does renewable term cover work?
The term of the chosen cover can be selected at outset - either 5 or 10 years, and it is underwritten as normal. The cover can be extended for a further 5 or 10 years without any further questions about the health and lifestyle of the life assured.
We will only require evidence of the ongoing need for cover when full financial underwriting was required at outset, (i.e. for sums assured over £3m).
It’s available on life only, or life and critical illness cover policies, and is even available on rated cases.
There are several reasons why a renewable term contract might be suitable for your clients’ business protection needs:
- Key person cover for younger people, where cover may be required for a longer duration which can be difficult to justify at the outset.
- Cover for contractors, locums, sportspeople, where it’s expected not to be needed beyond 5 or 10 years, but they want an option to extend.
- Flexible corporate loans, where the term of the loan is undetermined or can be extended
One scenario in particular is worth elaborating on - key person cover when tax relief may be available on the premiums as determined by the ‘Anderson Principles’. The criteria under the ‘Anderson Principles’ was outlined in 1944 by Sir John Anderson, the then Chancellor of the Exchequer to establish the tax treatment for key person cover. Provided the following are all met, premiums may be treated as allowable deductions from profits for tax purposes, and in which case the proceeds of a claim will usually be treated as a trading receipt of the business and liable to tax:
- the sole relationship is that of employer and employee;
- the insurance is intended to meet loss of profit resulting from the loss of services of the employee; and
- it’s an annual or short-term insurance.
A business cannot choose to give up tax relief on the premiums to ensure any claim proceeds are free of tax, so when the first two criteria are met, the term of the policy should be “short-term” - which is accepted to be less than 5 years. If cover is desired beyond 5 years, then a renewable term policy will tick both boxes.
We’re committed to keeping things as simple as possible for your clients and, in turn, making it easy for you to do business. Introducing a renewable term option for business protection will give clients peace of mind as they will be able to continue their cover without having to complete further applications or paperwork. We will write to them shortly before their renewal date providing them with their options. If they wish to renew their cover, we will take care of the rest - they won’t be required to do anything at all*.
Find out more
If you would like to know more about these, or any of AIG Life’s other Business Protection solutions, please call our Sales team on 0345 600 6829 or email: email@example.com
Click here: Product Information for Distributors’ in line with the FCA’s product governance requirements
N.B. For any Key Person Cover policies affected, business owners should clarify the tax position with their local Inspector of Taxes as to whether the premiums will be deductible. We have a specimen letter template available on our website here
*unless evidence of the ongoing need for cover is required