We all know that life in business can be tough and it can take its toll on us in a number of ways – including derogatory effects on our health. That’s why life insurance is so important to ensure that our loved ones are taken care of even if the worst happens.

What is life insurance?

The aim of life insurance is to provide our loved ones and dependents with some financial security even after we have gone. It is sometimes referred to as ‘life assurance’ because even though it is a type of insurance policy, it covers for an event that will definitely happen – i.e. death – as opposed to an event that ‘might’ happen.

There are several forms of life insurance including:

- Level term cover: This provides cover for a set number of years with premiums paid regularly and in return a sum will be paid out on the policyholder’s death.

- Decreasing term insurance: Sometimes known as “mortgage life insurance” this sees the sum assured decrease over the term of the policy often in line with the rate of an outstanding mortgage balance.

- Increasing term insurance: This sees the sum assured increase over the policy term, normally by a percentage linked to the Retail Price Index.

- Whole of life insurance: This guarantees a payout when the policyholder dies as long as the policy remains active and premiums are maintained.

- Endowment life insurance: Effectively a savings scheme with insurance attached it is typically linked to a mortgage with returns paid out at the end of the policy term.

- Family income benefit: Gives your family regular payments over a set period rather than a lump sum when you die.

- Renewable term insurance: With this type of cover your policy will be renewed at the end of the term without the need for a new medical assessment. However, your premiums will be based on your age at the point of renewal.

- Convertible term insurance: Regular term insurance but with the option to convert to a whole of life or endowment policy at the end of the term.

What is business life insurance and how does it compare to regular life insurance?

In addition to regular life insurance which is designed to protect your loved ones, it is also possible to take out business life insurance to protect the interests of important individuals within your company such as directors, partners, shareholders and even employees.

Business life insurance can take a number of forms including:

- Protection for shareholders/directors: If a director/shareholder dies and their shares are passed to a beneficiary then there is the risk a competitor could acquire these shares, particularly in a Close Limited Company. So individuals in this position can set up life insurance in which every director/shareholder has an interest in the life of the others and on the death of one, the policy will pay out to buy the shares back so they can be distributed evenly among the rest of the shareholders.

- Business partner arrangements: Similarly, business partners can take out life cover allowing them to buy back the deceased partner’s shares.

- Key person arrangements: This is someone who may be impossible for your business to replace because of their knowledge or skills. If that person died your business could lose out financially and so a life policy can be taken out on that individual.

- Employee arrangements: Sometimes employees can enjoy life protection from their employers through a death-in-service scheme which is typically worth around four times their annual salary.

Is there anything else to watch out for?

Be particularly mindful of ‘exclusions’ – a circumstance or event that invalidates a claim. For example, you may not qualify for cover if you have pre-existing medical conditions or if you die within 60 days of taking the policy out.

So which type of life insurance is right for you?

Before taking out life insurance, think about whom you want to benefit (i.e. your business partners or your loved ones) and how you want them to benefit (i.e. a lump sum, income benefit, etc). You should look into the various cover options and determine which best suits your needs, as well as the premiums you can afford. Use a life insurance comparison website to get an overview of the policies available.

When assessing premiums, life insurance companies will typically consider your age, gender, height/weight, medical history, marital status, occupation, smoking/tobacco use, alcohol consumption, foreign travel and more.

You may qualify for cheaper premiums if you adopt a healthier lifestyle such as by quitting smoking or joining a gym. Ask your life insurance provider if there are any steps you can take to lower your premiums.