Let's Talk Income Protection

Unlocking Business Protection

• Income Protection Task Force • Season 2 • Episode 4

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In this episode, Matt and Stevie get down to business...business protection that is! A very technical episode featuring three interviews based on different levels of expertise in the space with guests Tara Cohen, from The Mortgage Centre Direct and one of the IPTF's new 7 Advisers, Nathaniel Lee from Business Protected and from L&G, Dave Butler. 

Business protection represents a massive gap in the UK market, with just 1% of protection sales despite a £1.35 trillion opportunity, because nearly every client you speak to is likely connected to a small or medium-sized enterprise that needs protection.

Listen now to learn more about:

• How business protection covers key person protection, shareholder/partnership protection, and business loan protection
• How employee benefits like executive income protection and relevant life policies offer tax-efficient solutions for businesses
• How new advisers should build confidence by understanding business protection language and leaning on BDMs for support
• How executive IP offers higher benefit levels (80%) than personal IP (60%) to account for tax when paid through payroll
• How business owners need education about protection options, as many are unaware that these solutions exist
• How specialist business protection advisors focus on educating clients first, rather than immediately selling products
• Why understanding tax implications is crucial when recommending business protection products
• Why any advisers unsure about business protection should: "Write it or refer it" - don't let clients miss vital protection

Links from the episode:

Visit the IPTF website to access new advisor tools, including underwriting guides, calculators and a glossary of IP terms.

📣 Send the podcast your questions, thoughts or advice to feature on a future episode via:

Voice notes via SpeakPipe
Or email Info@IPTF.co.uk

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IP Task Force on Instagram

Produced and edited by SEA Studios

Speaker 1:

Hello and welcome to let's Talk Income Protection Season 2, episode 4. This is the podcast that breaks down everything you need to know about income protection, whether you're an experienced advisor or just starting out. This podcast will give you actionable insights and advice and, of course, gain valuable unstructured CPD points. I'm your co-host, stevie Arnoldi, the content associate for the IPTF, and I'm joined, as always, by the protection coach, matt Chapman. How are we doing today, matt?

Speaker 2:

Doing okay. Thank you you, stevie. Apart from a little bit of hay fever kicking in, now the weather's starting to turn, but no feeling very positive. I'm really excited about this episode, for those of you who probably know me know that business protection is a subject I'm extremely passionate about and I'm really excited to start unlocking this potential opportunity for all of the listeners.

Speaker 1:

Yeah, so you were just saying off air that there is a huge gap in this market. Is that correct, Matt?

Speaker 2:

Massive. So currently business protection accounts are roughly 1% of annual protection sales in the United Kingdom. We think the gap has been calculated to be around £1.35 trillion in terms of the potential gap for coverage. But, most importantly, I think this is where it gets really interesting.

Speaker 2:

Most of the individual clients that advisors out there are advising on for mortgages, for wealth and for personal protection are probably working for a small to medium business and you think about business protection and how that supports and services those small businesses and how those businesses then employ the individuals and their personal wealth is inextricably linked to the business, employ the individuals and their personal wealth is inextricably linked to the business. It's amazing that not more advisors and not more businesses are having these conversations and we think roughly there's about just under 6 million. We think it is SMEs in the UK and we think that accounts for around 99% of the working population of the UK. So nearly everybody you're speaking to at some level is probably going to be working for an SME or is inextricably linked to an SME. So it's really important we have this conversation. It's really important that we protect as many people as possible and we can do so by building more resilient businesses.

Speaker 1:

Wow, okay, so there is this incredible gap, as you mentioned, but also an incredible opportunity for advisors out there. So that's why this month, we are focusing our episode all about business protection, or BP. This month, we are focusing our episode all about business protection, or BP. It is a type of insurance that helps businesses continue to operate if key people become seriously ill or die. It ensures financial stability during tough times and can cover things like key person cover, which protects a business against the loss of a crucial team member, shareholder or partnership protection, which helps surviving owners buy back shares if one dies or becomes critically ill. Business loan protection, which repays outstanding business loans if a guarantor dies or is diagnosed with critical illness. But there are others that we are going to focus more on today, and Matt tell us a bit more about those.

Speaker 2:

Absolutely so. The products you just spoke about there were what I would typically call core business protection solutions, so taken out by the business and its owners with the idea, as you rightly said, about business continuity, keeping the business trading when something goes wrong with one of the key members of staff within the business, whether that be a director, owner or another key person inside the organization. But what we've also got is a whole tranche of what I would call employee benefits. So these are products that provide direct benefit to employees or directors of the business and typically that includes things like income protection. So we have executive income protection and relevant life, which are private sort of sick pay, private death in service contracts. We've also got group schemes, which also include group income protection. So these are products that are taken out by the business, specifically with the idea of offering some sort of employee benefit to either a director, a shareholder owner or potentially one of the other employees of the organization.

Speaker 1:

Brilliant. Thank you, matt. So we do have an action-packed episode today and we have a lot to cover with three interviews aimed at all levels of advisors. So if you're new or experienced, we have a lot to offer. That will give you, the listener, all the information you need to go out and provide excellent advice around business protection. First, we're going to speak to one of our new seven advisors, Tara Cohen, a Director and Mortgage and Protection Consultant at the Mortgage Centre Direct, about becoming a new 7 Advisor and her journey into creating videos for social media, where Matt provides some excellent tips on improving your videos, before we discuss some pertinent questions around getting started with business protection.

Speaker 1:

Next, matt will be speaking to Nathaniel Lee, managing Director at Business Protected, a company that focuses solely on BP, to get his insight into this market so you can build it into your advice process. And then, finally, I speak to Dave Butler, protection Market Development Manager at Legal General, to get all technical about everything, before Matt provides his key takeaways and conclusions to wrap up this month's episode. But first let's chat to Tara Cohen from the Mortgage Centre Direct. Mortgage Centre Direct. So hi, tara, welcome to the show. It's a pleasure to have you on the podcast. Firstly, I just want to say congratulations on becoming a 7 Advisor for the IBTF.

Speaker 3:

Thank you, yeah, I'm delighted to be here, very excited.

Speaker 1:

Now for the listeners out there, Tara. We are talking about business protection and I wanted to ask you, Tara, what is your experience in this area, or what challenges are you facing around it?

Speaker 3:

So I have quite limited experience with business protection. So my network if you advise on business protection, you need a business protection license. But relevant life cover and executive income protection cover doesn't fall under official business protection. So we are allowed to advise on that, we are able to advise on that, allowed to advise on that or we are able to advise on that. And I have advised clients in the past on relevant life insurance.

Speaker 3:

Because it's a really, you know it makes sense. We deal with a lot of self-employed business owners who have their own limited company. So it's a really, you know it makes sense for them to arrange life cover through the business. But because I've got lots of limited company director clients, you know it makes sense that that could be another way of me growing my business but also helping people. You know, ultimately that's what I want to do.

Speaker 3:

I want to help more people and you know there's a product out there they may not be aware of it. I want to be able to explain to them why it's the right thing for them and also their accountants. You know, I've spoken to um, one of my business development managers at I think it was legal in general, and she said to me. Actually, a lot of accountants don't know that these products exist and they can be helping their clients to help themselves. So you know there's so many that you know it helps the clients, it helps us, it helps their accountants, you know there's so many advantages and matt for um, an advisor like tara starting this journey, uh, with business protection.

Speaker 1:

What would you suggest are the things that maybe they should go and find out about, or what would be the next steps?

Speaker 2:

There are absolutely tons of resources out there. At the minute. It used to be, it was quite difficult to get your head around business protection, but we find a lot of the providers are providing webinar series. There's lots of courses out there now to go on.

Speaker 2:

I think the key is to lean into your BDMs. If you've typically got relationships with your BDMs at the providers already, ask them about the business protection proposition they've got. Now they might not know everything. They might actually put you in touch with a separate BDM or a separate specialist at the organization, but at least they'll be able to point you in the right direction and give you some guidance on what to do. And give you some guidance on what to do Because I think the number one thing is to understand the different products, how they service a business and provide risk mitigation to different organizations, and how they generally operate and how they're structured. And from there you can start to build your knowledge and start working on things like your business acumen and understanding accounts and how to actually go and have a conversation with the business owner. It's about just getting to know the solutions above all else.

Speaker 1:

Fantastic, matt and Tara. Do you have any questions around business protection that you'd like to ask Matt?

Speaker 3:

Yeah, I think one of my questions is about the executive income protection. So, because we have lots of business owner clients, you know, typically it's, you know, one shareholder director in the business. One of them is off sick but income is still being, you know, received into the business, so they're both eligible for salary and dividend, but one of them is off sick. You know, how do you separate out that income where one continues to receive the income because they're still earning and the other is off sick, you know, do we need to then start splitting the shareholding in the business, and does that need to happen, you know, from day dot, or does that happen once we get to claim stage, you know? So that's, you know, a complication that I've often thought about, and so I'd like to know how I would deal with that. You know, is that something you've come across before?

Speaker 2:

Okay. So that's a very good question and I think that really highlights the risk of doing half the job. And this is why I get a bit concerned around when organizations and networks and other people have separated licenses like this and say it's fine for you to make recommendations around these products, which are essentially albeit employee benefits. They're still business protection contracts in that the company's the proposer. We might have a life assured, who's a director of the business and then the benefits getting paid out. Personally understand that, but it has a consequential impact on the structure and the organization of the business. That's the point I was trying to make.

Speaker 2:

When we're arranging those types of policies, there has to be a wider conversation around. Okay, so this is here to provide a personal sick pay benefit if either of you find yourselves unable to work for an extended period of time beyond the deferred period. That we agree. But what does that mean for the business? So one of you is going to be out of the business and, yes, there'll no longer be a cost on the business in that the income's coming in and being re-diverted out to the individual. So personally they'll be fine, but in terms of continually operational efficiency of the business, making sure the business remains profitable. Someone coming in to step in and fill those boots, yes, okay, you won't be paying the individual, so you might have additional cash, but does there need to be a wider conversation around key person structure? Does there need to be a wider conversation around what happens to their shareholding in that event, which is a discussion around shareholder protection, for example? So this is where I think there's that natural crossover, where the conversation has to be expanded on and there needs to be a genuine deep dive into okay, what does this mean for you and the other director owners operationally speaking? And often I think that's where it goes a bit wrong is that when advisors are dipping in and dipping out of business protection, it can become a bit problematic because there can be these consequential effects and impacts that we didn't actually plan for or mitigate for. So it's just, yeah, it's a very good question.

Speaker 2:

I would argue that it's probably a completely separate issue to the operational side of it. So the way I would probably treat it is I'd almost treat it like you draw a line down the middle and on this side, you've got what I would call core business protection, so shareholder or partnership protection, you've got loan protection in there and you've got key person in there. So those are the ones that, realistically speaking, are aimed to keep business continuity going, to protect the business assets, the owners of the business and the structure of the organization. And over here you've got wide classes, employee benefits, relevant life, executive income protection and you've got group schemes, pmi, and it all sits on that side of the fence. They're two separate discussions. In some respects, yes, there's crossover. But if you're just doing executive income protection, it needs to be very clear in the conversations that my advice is limited to employee benefits. I'm arranging an executive income protection contract to make sure that you personally don't go without an income if you're unable to work. It's just we happen to be structuring it as a business plan because it's more tax efficient or we can include your pension contributions.

Speaker 2:

Executive income protection is not always a favorable option. Again, it's really important to know that there are pros and there are cons. So, yes, okay, we can ensure a higher amount of income 80% plus, potentially, pension contributions on top. But it's important to note that the benefit is paid gross, so it's paid pre-tax, which means then, when it gets deducted from the business, there's income tax and national insurance contributions deducted from that benefit level, which means if you've got a high earning business owner, it might not be tax efficient for them in terms of net income to do it that way. Yes, of course they're getting savings in terms of the fact that it's going through the business, so they're not paying corporate or they're reducing the corporation tax liability, but actually it's not always that beneficial to do it through.

Speaker 2:

So what I recommend advisors do, and yourself, tara in particular, is, if you come across that situation, do a comparison. So work out what's actually going to be most efficient for the customer, because often it's not about whether they're getting tax savings or not. It's about is the net level of income going to be sufficient to support them and their family for what their needs actually are? And in some cases a personal contract might be a better overall option. It provides greater flexibility if they were to change businesses or to wind the company up or leave.

Speaker 2:

So there's pros and cons to each, and this is what I mean about that product knowledge. It's really good to go and get that knowledge down so you can understand. Tick, tick, tick. That's a pro con con con and same over here with personal, and then you can do a comparison. There's actually a calculator. Legal and General have actually done a calculator where you can punch the numbers in for both and it will actually tell you which is going to be more favorable for the customer in terms of net benefit yeah, I was just going to say I knew there was a calculator somewhere, so thank you for confirming that lng all these tools are really useful and to make sure we're doing the right thing for the customers absolutely.

Speaker 2:

I think that's the perfect thing to finish on there, stevie. Is that what this is about? It's not about saving. Is that what this is about? It's not about saving tax. It's not about cutting corners. It's not about getting more for your money. It's about making sure the customer gets the right outcome and exactly what they need when they need it most.

Speaker 1:

Amazing. Thank you so much, tara, for your time. Congratulations again on becoming a 7 Advisor, really looking forward to seeing your videos in in the future. And, yeah, now with that auto cue, that extra light I'm expecting, you know, hollywood quality videos now, so I can't wait for those. That was tara cohen from the mortgage center direct, and, as she mentioned calculators or rather you did, matt I do want to highlight some fantastic new tools that we have on the IPTF website, iptfcouk. These new advisor tools are fantastic and they include calculators, but also underwriting guides and a glossary of IP terms. So please do go and check that out. Matt, I think you really summed up that you know novice advisor, you know coming into the business protection space, you know what you need to think about. It seems that actually there is quite a lot to think about and you need to consider lots of things. So potentially, if you're not fully confident with just advising personal IP, it's maybe a step too far.

Speaker 2:

Perhaps I completely agree. I think it's one of those things where it's not something to be played at. If I'm being really honest with you, it's not something that you should just dip in and out of, and I think we're going to have a conversation with Nathaniel about just that in a minute. But from my perspective, as someone who's both been involved in giving business protection advice and training others on how to do it, I think my advice would be get very confident in the protection space, normally in the personal protection space. So once you feel very confident and highly competent around doing personal protection, at that point you can really start to build your knowledge of the business protection products and then you'll be able to see quite categorically how they differ from personal, and that will give you that perfect entry point to understand. Okay. So how and when do I now introduce these products alongside what I currently offer to complement them for those business owners I speak to?

Speaker 1:

Brilliant. Okay, let's hear that interview with Nathaniel Lee from Business Protected now.

Speaker 2:

Well, it's not often I get to speak to another advisor who is solely dedicated to business protection, so it's great that you're here. Thanks for coming in, nathaniel. Really good to see you, mate. How's things? Very well.

Speaker 5:

Thanks for having me.

Speaker 2:

Matt. Very well, thanks for having me, matt, no-transcript, self-employed or business owner type client. So talk to me about what the mindset was around going all in like you've done so. Business protect, exclusive business protection, brokerage. What was the decision? All guns blazing, business protection and nothing else. Talk me through that.

Speaker 5:

I think there's probably a few reasons similar to you, I think. One is that it's a bit of a niche. So you know, there's a lot of people in our industry who give really good advice and there are. The vast majority give personal advice and, as you say, they might do a mortgage. They might then do a bit of relevant life or something like that. And I just thought that there was a an opportunity to speak more broadly about you know the other business perception options and also group, because I think you know there's quite a few brokerages who deal with big group schemes and you know private medical and things like that, but they often don't offer a child or a key person. So the niche was probably one. The other was I just preferred the complexity of it. You know you're dealing with business owners who are time poor, but when you have the conversation it's not oh look, we can't afford 20 pounds more because we've completely maxed out the mortgage.

Speaker 5:

It's we've got these risks, and if we don't do anything about it, we just stick our head in the sand then we could derail everything that we've built over 20 years. You know, we've got family members who work in the business. You know so many different factors and so many angles that I just found it more interesting. I do enjoy doing a bit of personal protection if we've got, you know, a partner or whatever, but it's just so much more interesting to me dealing with that layer of complexity. I think they're the two main reasons.

Speaker 2:

There is a lot of perceived complexity around business protection. Now, those like yourself and myself who do it fairly regularly, you realize it's actually not as complex as many people make it out to be, but I do think it is different. It does require a different set of skills, maybe a bit of business acumen, also a knowledge, a good understanding and knowledge of how to structure these things and things like making sure the trust is set up correctly so the actual plans you're putting in place can be executed the right way, right. So I just wanted to kind of pick your brains about that, because obviously I can imagine there's gonna be a lot of people listening thinking, well, I'd love to get involved in business protection. Sounds really lucrative, it sounds great, sounds fantastic. What do you think advisors or what do you see as being kind of the main things that advisors miss out on when they sort of treat business protection as a bolt on alongside, say, mortgages and personal protection?

Speaker 5:

Yeah, it's a good question. I think the mortgage brokers are so busy.

Speaker 5:

And if you've ever been one, or you're near a mortgage broker. You know that they're getting called every five minutes. So what it doesn't afford you is the time to go into such depth with some of these clients where they really you know they might need six different policies for seven different individuals. You know you might be doing tens of applications for these clients and you just don't have um, you know the time, time and the opportunity. So I think there's a lot of advisors who know about it, as you said, you know earlier on and they will dip into it and go look, I might do a bit of relevant life, because I know that's a really tax efficient way of doing the life cover and things like that.

Speaker 5:

I think what they miss out on hugely is the opportunity. They're seeing the tip of the iceberg but they're not seeing the huge amount that's underneath. I interviewed a guy in February or March time and he was talking about his biggest pet segment Fantastic. It was £700 a month for a partner of a solicitor's firm, a limited company, and it was great. It does some life, some kick some IP. It was a really good place and I'm not belittling that whatsoever because that was great. You know, it does some life, some kick some IP. It was a really good place and I'm not belittling that whatsoever because that was fantastic. But what he didn't talk about was all of the other opportunities that he'd left on the table, because if he was doing some of those, things, and there's another three, four, five partners, whatever it is.

Speaker 5:

You've got the opportunity to say well, look, we're doing the tax efficient cover for you. Why don't we also talk to all of these other individuals? Because then it's fair across the the ownership of the company. You've then got the group schemes. You've got private medical. They might have debt. They might be heavily reliant on a couple of key people who aren't the directors.

Speaker 5:

You know there could be a financial controller or someone or other, and it I mean, there might not have been but it's having those conversations that opens up such a huge area of untapped potential, and also if you are a mortgage broker and you've done that and then you've got a firm that's got 40 people or something. You've got the opportunity to go into all their mortgages and their personal protection anyway. I mean, I spoke to my BDM at one of the insurers a couple of years ago about this and he had an advisor who had done exactly that.

Speaker 1:

He'd gone in, done a bit of business protection.

Speaker 5:

Then he was dealing with all of the individuals. He said that he'd looked after that firm for basically a year and that was kind of all he'd done for a year because it was just enough business it was a couple of hundred staff, there's so many mortgages and so many personal protection policies to do that he didn't really need to do anything else.

Speaker 2:

I think we get this wonderful privilege, when you're working in business protection, to almost like be working with you, almost look like a business consultant, because you're almost like working with the business owner as they're going through this kind of life cycle that you mentioned. I think that's a really lovely way to describe it so clearly. You guys have built a process that works pretty well with the SMEs. So if you wouldn't mind just telling the listeners out there what does that kind of client journey or that client process typically look like with you guys?

Speaker 5:

Yeah, so if we take someone, you know, we onboard a new client, then the first meeting and I guess one of the reasons I enjoy doing these sorts of things is because of what I'm about to say so the first meeting is a fact line line, obviously, but it's also a huge amount of education on the personal side.

Speaker 5:

You know, if you're a mortgage broker who's predominantly dealing with life, kick or ip, some combination of those, there is a bit of explanation needed, of course, because some clients don't know about all of those products, but they know that life cover and they know that they probably should insure it and all that sort of stuff.

Speaker 5:

On our sides we get businesses that have been in business for years without knowing that they have a key person risk or that they could cover the personal guarantee or all of these extra things that are completely suitable and really important that they consider.

Speaker 5:

But not things that they've ever looked at before. So I think that's you know why I say it's good that you know we do these sorts of sessions is. I don't mind explaining it over and over again, but it'd be really useful if they kind of understood it, because then we could just get into the thing.

Speaker 1:

So that's meeting one.

Speaker 5:

Then we go away. We've got a recommendation based on, you know, the facts that we've got.

Speaker 1:

We don't do medical at that based on you know the facts that we've got.

Speaker 5:

We don't do a medical at that point because you know sometimes they come back and go look, those premiums are astronomical, we can't do it. But obviously we'll have gathered a bit of information from that. Then it's the sort of final presentation of the meeting, of the recommendation. Sorry, and sometimes you know it can be that it's a bit too all over the place because initially you've recommended four or five and you really want to nail it down onto maybe one or two insurers so that they minimize the process. Because we've had it before where we've, for underwriting reasons, we've had to spread it across the entire market. Juggling that from our side when we know what we're doing is difficult enough, and when you've got a client at the other end going, I have no idea what's going on the risk that you run of them not taking it out because they get decision fatigue and they really lose the will to live in a lot of cases it's much better to have a few, so obviously we manage all the trusts.

Speaker 5:

We then then do annual reviews and it's really important to ensure that we are revisiting that annually because it could be that they've had a pretty flat year, it could be that they've just emerged with another business and actually that you know and and we try an rpi obviously there's financial limits, so you know, if you've got critical illness cover as part of your shareholder protection, it can be quite difficult to RPI index it when it goes above certain limits. But we need to revisit that because if the valuations run through the roof, then OK yeah, it does part of the job that you initially thought it was going to do.

Speaker 5:

But when that independent valuation comes through and now you've only got 50 billion a pound you're going to still have to find the rest of that money and that can be quite a difficult thing when you think you've only got 50 billion pounds. You're going to still have to find the rest of that money and that can be quite a difficult thing when you think you've already solved that problem.

Speaker 2:

Absolutely, and I think it's really interesting what you're saying about this kind of the journey being primarily educational to start with, because this is exactly what we found. I mean, the reality is the knowledge gap out there is vast. I think that's probably one of the main reasons why business protection uptake so low is because actually very few people, including business owners, accountants, solicitors, anyone that's involved in the operational side of running a business, isn't even aware these products exist, and I think we're doing what we can in terms of educating, but it often happens only when there's a customer sat in front of you and you can go through that process. And I think there's also a bit of a knowledge gap in terms of the advice community as well. I mean, you think about the number of advisors were probably competently writing business protection frequently.

Speaker 2:

You know I could probably write a list and it wouldn't be all that long, if I'm being honest with you, because it is an area of specialism and I think, in order to learn your craft very well, you've almost got to kind of got your teeth stuck into this one, which kind of leads me nicely onto the final question I wanted to ask you, if that's okay, which is let's imagine we've got listeners today who are sitting here thinking I'd quite like to get into business protection sounds interesting.

Speaker 2:

I like the sound of it, I like the idea of helping business owners etc. And we have focused more on, I suppose, executive income protection and even potentially a bit of group stuff and potentially key person IP, although that's obviously rare these days. But if you've got an advisor out there listening, for example, who's sitting there listening to us talk and thinking, yeah, I wouldn't mind having a go at that, what kind of advice or what would you say to an advisor who's probably maybe IP confident at this stage but hasn't really explored business protection but thinks it'd be something they'd like to get interested in? What would you recommend to them?

Speaker 5:

I guess getting stuck in, because if you don't you know, if you know it all academically. You've been on the webinars and you've read the articles and all that sort of stuff.

Speaker 5:

It's great Actually where the learning comes from is when you sit in front of that client and they ask you a question and you think, oh, that's really, I know the answer to that. That's really awkward. The that, you know, when we take people on and we're trying to help them understand the role, it's not necessarily the technical aspects of whilst they are really, really important, obviously, but it's not. A client's not going to want to know that you can cover 75 or 80 percent and this is how you know it gets too granular for them. What you need is you need to have a good understanding of what their motivators are and the questions that you can ask. That will really move the needle on their decision making. That will, you know, turn it from a oh, that's a nice thing that I didn't know you could do to it. Why have we never done this before and when can we get it sorted? Um, so, you know, reach out to your bMs, watch content like this and obviously, if you know, I wouldn't be doing ourselves justice.

Speaker 1:

But if you don't want to do it, you can always refer it to me, or Matt.

Speaker 2:

Hey, what amazing. But listen, I will say this I really like what you guys are doing at Business Protected. I think you've got a great brand. I think I love the process you've got, and even we bumped into each other, didn't we? At one of the conferences recently, and you gave me a little brochure and I think it's great the way you've mapped out the journey and the process. So I think, yeah, anyone that's interested in getting involved in business protection, reach out to either of us. I'm sure we'd be happy to answer your questions. Like I say, I agree with you.

Speaker 2:

I think there's no substitute for getting stuck in and having a conversation, because what you hear theoretically on these webinars is usually very different to when you sat in front of a business owner having a conversation around what we do and how we prioritize their protection. But, um, honestly, it's been super good having you here today. It's always great to meet a like-minded individual. As a sound, you know, you and I could talk about this for days to come, I think. Um, but, nathaniel, thank you so much. Nathaniel from business protected, really appreciate you coming today and thanks for answering my questions. Thank, thank you. Thanks for asking.

Speaker 1:

Nathaniel Lee from Business Protected there. Matt, a lot of that went over my head, I'll be honest, so can you give me a little? What were some of the key highlights there?

Speaker 2:

Well, I think it was good to speak to someone who's made that decision to specialise in business protection and you can see just by listening to some of the things that Nathaniel saying that he's clearly developed that level of acumen. He's got that understanding of how the business operates and then how the business protection solutions can really provide tangible benefit. And this goes back to the point I made earlier on when we were speaking to Tyra and then we kind of before we came to this about it's not something to be played at, I don't believe, because the risks and the consequences of getting it wrong can be quite severe. Where we're talking about maybe someone's personal mortgage and don't be wrong, I'm sure many people's mortgages are significant but the difference when it comes to businesses, if you look at the value of a business or even potentially turnover, that can be sizable. So the risks of getting it wrong can be quite severe. But I think it was good.

Speaker 2:

So you offered some really great tips, didn't you about just kind of getting into it, speaking to the BDMs, just building your understanding, and I think for anyone listening that wants to get involved, I think those are some great starter tips Start expanding your knowledge, speaking to people, shadowing people, really kind of get your head under the bonnet, so to speak, of business protection. But I think what we'll probably find, as you start to go and speak to Dave in a minute, you'll start to see some of the levels of complexity that we were referring to as to why it needs to be something that you've got to have that level of attention to. So, yeah, it should be quite interesting. Next interview yeah, definitely.

Speaker 1:

Yeah, we've just had that intermediate level with Nathaniel Lee. You know, if you're comfortable with IP and you're ready to sort of delve into the business protected world, that was great for that. But now we're going to get into some expert level stuff. You know our final interview to podcast where, as I promised, we're going to get technical technical with Dave Butler, protection Market Development Manager at Legal General. Dave, thank you very much for your time today. First of all, let's just jump straight in. We're going to get quite technical in this section of the podcast. I've got a few questions to answer you. I'm going to start with this one. How does LG typically assess income for business owners when underwriting a business income protection policy, especially when their income includes dividends or fluctuates year on year?

Speaker 4:

Thank you and thank you very much for having me today.

Speaker 4:

I think that's really really important to understand that business owners look to be as tax efficient as possible and that's one of the reasons why they're going to be taking out this cover sort of in the first place.

Speaker 4:

They understand some of the tax benefits that you get as being a business owner. So we all look at total earnings. So salary, dividends, p11d benefits. You've also got the ability to ensure a level of pension contributions inside the exec IP contract as well. So totally understand that directors will look to achieve that tax efficiency through dividends, that directors will look to achieve that tax efficiency through dividends. So, even if it's small, salary dividends and then PLF and D benefits separately, conversation about those pension contributions being made as well. In terms of evidence, we'll look at the last 12 months but if they are fluctuating, the ability to look over the last three years worth of earnings and consider what that that overall average looks, looks like and in all of these situations, always encourage people to to talk to an underwriter if they're not sure in terms of setting what that benefit level should should be and can you walk us through how the ownership structure of a business income protection policy affects?

Speaker 1:

you know its tax treatment for when a company pays the premium for a director.

Speaker 4:

Absolutely. And the exec IP you're absolutely right. That is going to be paid for by the business. So the business is going to want to try and make that an allowable deduction for corporation tax purposes and to have that allowable deduction made. You want that to be seen as a genuine sick pay arrangement. So the company pays the premium. The company is going to be looked to save the corporation tax. To be able to do that, to be wholly and exclusively, it needs to look and feel like sick pay.

Speaker 4:

So one of the things that we will say, especially when covering directors you can cover employees inside the business as well but if we're looking at the directors themselves, is when that claim is paid. The claim isn't paid personally, the claim is paid to the business and the business pay that on. We would encourage as a sick pay arrangement any benefits to be paid through payroll to make it look and feel like a sick pay arrangement, any benefits to be paid through payroll To make it look and feel like a sick pay arrangement. The business is paying it through through payroll. You can then sort of prove that it was wholly and exclusively for those purposes If the business were to pay it as dividends or even attempt to retain that money inside the business. It doesn't look and feel like a sick pay arrangement. Then you're calling into question question those holding exclusively for business purposes. So yes, the company can claim the corporation tax relief. But let's be clear, it's a sick pay arrangement and sick pay we'd feel should be paid through payroll at that stage.

Speaker 1:

Right, okay, and are there any key differences in how benefit levels are calculated for business income protection, you know, compared to, say, a personal IP policy? And what do advisors need to watch out for when setting the sum assured?

Speaker 4:

That's a really good question, a really good question. So when you take your personal income protection policy out, we admit the claim, we will pay that to the individual, to the claimant. There's no deduction for income tax and corporation tax. So our maximum benefit formula on a personal product 60% of the first £60,000 worth of earning, 50% thereafter Because we're saying this is being paid to the individual through payroll, that they're going to need a higher benefit formula because when you go through payroll you're going to see those deductions for income tax and or sort of national insurance. So we actually have an 80% benefit formula. In the exec IP space we still need some incentive for the individual to be able to return to work. But if you are paying the 60%, then 50% after tax. That's going to net down to quite a low position. So we have an 80% sort of benefit formula, as we said earlier, having that 80% of both salary, dividends, p11d benefits. That's how we calculate the sum assured, albeit we expect that to be paid through payroll. So you're going to see a larger sum assured which in turn is going to create a larger gross premium. But the individual isn't any longer paying this through their net income, so they're not having to pay income tax and or national insurance on their earnings before they then pay that personal direct debit. They're going to see the company pay that, potentially get that corporation tax relief so between 19 and 25% and then not face any personal taxation on that element of the earnings.

Speaker 4:

We can't guarantee for every situation, depending on individuals' tax rates, personal allowances, that that tax saving will wipe out the increased premium for that higher level of cover. In the vast majority of cases it will. But we've got support material. We've got a calculator where you can compare a personal income protection to an executive income protection policy and see which works out best for the client. In the vast majority of cases people with standard tax rates and tax allowances, the exec IP nets them into a significantly better position and it's worth pointing out when talking to business owners. They understand the impact, the benefit of paying. You know they collect receipts, they want to be able to put things legitimately through their business and assuming this is structured correctly and paid correctly at claim stage, they'll get that corporation tax relief. Some business owners won't even want to see the calculation. It may be the one benefit. They say well, actually I can take it because I put it through the company and may actually be the reason why they act on the advice.

Speaker 1:

So I just wanted to ask you, drilling down on that a little bit more. So how does that expectation of paying the benefit via payroll work for a company director? You know company directors who pay themselves primarily via. You know nominal salaries and dividends.

Speaker 4:

From an underwriting point of view, that we're taking into account total remuneration. They're actually're taking into account total remuneration, they're actually taking into their gross total remuneration and applying that benefit formula to we get to that 80 percent, that 80 percent sort of number. That 80 percent is going to be a higher sum assured than if they had a personal one because of the impact of the income tax, national insurance when that claim benefit is paid out. But business owners understand it, they understand the benefit of corporation tax relief, they understand the benefit of having that direct debit through the business rather than having to pay for it personally, and it will be attractive to a number of business owners.

Speaker 4:

One of the benefits that you will see around the exec IP contract, as mentioned, is being able to cover the element of pension contributions as well. So, yes, that's going to increase the sum assured, the benefit that the client has. But one of the main efficiencies that business owners will do will be not only the dividends but making those pension contributions. If the business isn't functioning because they're no longer there, the pension contributions are going to stop as well. So we cover up to £40,000 worth of pension contributions. There is a benefit formula compared to the sum assured. But being able to add that and have that additional benefit sort of looking to their long-term goals around retirement, around lifestyle as they get older, so underpinning that pension contribution and their income in later life is a great additional benefit and one of the reasons why some may also choose exec IP over going the personal route on top of those tax benefits.

Speaker 1:

Fantastic. So, yeah, obviously there's a lot of benefits here by choosing, you know, exec IP over a personal income protection policy if you are running your own business or within an SME. But for the advisors out there looking to advise business protection, advise business protection what are some of the common mistakes or oversights that you see when advisors are trying to set up BP income protection for clients, and how can they avoid them?

Speaker 4:

When advising on exec income protection, you're going to expect a very similar medical underwriting journey. But the benefits of exec income protection are around the way it's paid. It's paid by the company the tax relief, the pension contribution covers that may be available. So we need to make sure we're aware of their tax circumstances. We can use the calculators and guides to understand the actual benefit and impact of having an executive policy versus that personal situation.

Speaker 4:

One of the things with exec IP yes, you could take it to a new company, but you can't necessarily take that policy on personally. So if you went back being employed, having that sort of flexibility that you'd get under a personal policy, whether you are running your own business or an employee without any sick pay arrangement would need to be considered. I think, when you're taking out an exec IP policy as well, that it is employer funded. If you are maybe two or three people inside the business looking for cover, exec might be appropriate, but this isn't for 5, 10, 15 employees. That's the group risk space that needs to be considered as well.

Speaker 4:

So, yes, there are all of these sort of small limited companies and it is the directors of limited companies, employees, that we're looking at, not the self-employed who don't have that limited company status or partners in traditional partnerships, members of LLPs it's directors of those limited companies and, yes, that four and a half million sort of companies that the opportunity is large and most people will have clients in their client banks that fit. But it isn't for every type of business and once the business has a number of people they want to insure, you've got to consider that group risk basis as well. And that point about flexibility if they think they may go back to being employed at some stage, that policy may fall away. If their health or underwriting has changed, there's no sick pay arrangement at the new firm, they could be left without income protection. So understanding what their future employment status plans are is important as well.

Speaker 1:

Thank you, dave. And finally, from a claims point of view, how does LNG support businesses when a key person or director goes off sick, and how does this differ from individual claims support?

Speaker 4:

It's really important that people understand the actual support that policies offer, not just through the primary benefits but some of the value-added services as well. So all of our income protection policies whether it's personal, exec cover, they will have access to rehabilitation support services. Many business owners don't like to take time off sick, will want to get back as soon as possible. Now there will be some illnesses, injuries where that's not possible. But to be able to have a sort of dedicated rehabilitation support benefit inside the policy from day one, not necessarily having to wait to the deferred period gets that business owner, gets that individual back on the road to to recovery.

Speaker 4:

So whether you have personal or exec, you've got access to that rehabilitation support benefit from day one. You've also got the well-being the general is well well-being support that not only applies to the life assured but their spouse or partner, their um, their dependent children that you've got added value benefits that are going to support the life of children and their family throughout the term of the policy through our umbrella benefits. Now it doesn't look and feel any different to our personal product because the need is exactly the same. You're looking to protect people's income. You're looking to be able to get them back to work as soon as possible. And actually things like the rehabilitation benefit may actually be more important to the business owners as they look to make sure that they can get back in a timely manner to help that business function, to provide the income that supports the lifestyle for them and their families.

Speaker 1:

Dave, thank you very, very much for your time. I think these insights about the complexity of BP is is fascinating, and it's great for those advisors who are already getting involved with business protection and are looking to improve their knowledge and understand what it actually means to recommend these products and the the process that it. So thank you very much for your time.

Speaker 4:

That's my pleasure. Thank you for having me.

Speaker 1:

That was Dave Butler from Legal General and our final interview of the podcast this month. So I'm going to pass it over to our resident expert yes, experts, I've said it again matt chapman, to give us those actionable takeaways. We've had three levels of interviews today novice, intermediate and expert. Matt, what are the key takeaways? And then can you just give us a little conclusion of the episode today, just just to wrap everything up?

Speaker 2:

Absolutely, stevie. Thank you very much. I always love being called an expert Not sure it's true, but I love it anyway. So I appreciate it, thank you. Well, I'll start off with the beginner advisors.

Speaker 2:

So obviously these kind of tips are based on the conversation I had with Tara, where we're talking about her sort of immediate journey and how she's starting to look to potentially get into the business protection space. So I think the first thing I'd say is start to build your confidence and start those conversations. Get comfortable with the language first of all. Business protection uses a different sort of language that you see in the normal personal protection space. So if you are going to get stuck into business protection, understand what the products are, understand how they relate to each other, how they relate to a business. Start learning some of the business acumen and terminology and phraseology that's used out there. Introduce business protection naturally during your existing conversation. So if you're dealing with a business owner, start talking to them about the business, what it means to them, why they set it up, how robust and resilient it is. Are they worried about how resilient it is to anything? What would happen if something happened to them? Start those conversations very naturally, in the same way you would with personal protection. I'd say use social media to learn, share experiences. I'd say, lean on BDMs, speak to mentors, colleagues, anyone else you know out there who's currently writing business protection, because there's no better way to learn than align yourself to someone who's already doing it so you can shadow their experiences, learn from them and get that firsthand experience in order for you to be able to start building on your knowledge.

Speaker 2:

The next one we talk about is the intermediate advisors. So what I'll talk about here is this is based on a lot of the stuff that I discussed with Nathaniel about upping that knowledge and really kind of branching out to an area of specialism. So this is about refining your positioning and building your processes. I think what we talked about, nathaniel and I, was this idea that we shouldn't be treating business protection as a bolt-on but as a standard educational part of your advice process. And it was really interesting about what he said was this idea of educating. So maybe the smart play there, if you've got customers who you're dealing with, who are business owners, start with that educational model. Really work on explaining the direct correlation between the business, its success and its level of resilience and their personal wealth and financial stability, position it as a leadership protection, help them see their responsibility to the business, their staff, their creditors, their clients, their suppliers and everyone else for that matter.

Speaker 2:

Now Nathaniel spoke very clearly, didn't he? Around the process. So he formulated an advice process where in that first conversation they're doing a very sort of open-ended fact, find they're going away and working on solutions, they're coming back. It's a dialogue, it's back and forth, it doesn't tend to be a one and done model. It's got a lot of follow-up, annual reviews, constant review of the needs for the business. Are they still fit for purpose? Has the valuation changed? Has the structure changed? So I think the smart place, before you even get into it, if you're in this sort of middle level, is really map out what that process looks like for an optimal customer experience, optimal customer journey and the best outcomes you possibly can.

Speaker 2:

And then finally let's get onto the advanced advisors. So this is about optimizing, educating and scaling. So this is inspired by the conversation that Stevie had with Dave Butler. I think for me, one of the most important things is understanding the tax nuances, the underwriting nuances. Nathaniel spoke about this as well, in terms of placing it with different providers to understand the underwriting nuances of these high value cases. It needs to be very clear, thinking about what Dave Butler said about how and when each product serves the customer the right way. So it's important to understand how income is treated, especially when you're doing things like executive income protection, and obviously, how that tax variation changes in terms of its treatments depending on the ownership and the way the products are structured. That's where you, as an advisor, can add real value. When you're dealing with business owners, setting the right sum assured, I think it's really important to make sure you're really hot on understanding how to avoid pitfalls. So bearing in mind, if you're doing executive income protection in particular, that income benefit has to be grossed up to allow for the changes in income tax and national insurance contributions that will be deducted from it when they get paid.

Speaker 2:

On payroll Training others Naturally, I'm a coach. I love to do this. Training is part of what I love to do, so train other people in the business, whether it's power planners, mortgage colleagues or even the introducers that you're working with. Get their internal knowledge up around business protection to spot those potential opportunities for the customers that you want to speak to, because I think that's really going to where you're going to make all the difference, and that's pretty much it. What I would say in terms of the one takeaway from today.

Speaker 2:

The thing that kind of is resonating through all of this for me is this idea that I don't believe business protection to be something you should play at. I'm not saying that you shouldn't offer it. I'm not saying that you shouldn't advise it Far from it. What I'm saying is, in order to produce the best possible customer outcomes, in order for you to be the best advisor you can be, treat it as something that you really want to understand properly, because when you do, your knowledge will go up, your credibility will be increased, customers will get good outcomes and you will naturally build a great customer base.

Speaker 2:

And I think probably the key phraseology I'd like to finish on, if that's all right, stevie, is this idea of write it or refer it You're going to be dealing with lots of business owner clients and chances are, if you're not an expert in business protection, you might be thinking, gosh, it sounds too daunting, I don't want to get into it. That's absolutely fine, but if you're not going to do business protection, partner up with someone who does. Make sure you've got a strong relationship with them and don't let your customers down just because of your lack of knowledge in that area. So make sure you refer it. So write it or refer it is the key thing I'd like to leave today.

Speaker 1:

Matt, thank you. As always, that was fantastic. And that's it for this month's let's Talk income protection. If you're not subscribed already, please do that now. And if you are, why not rate and review us on Apple Podcasts? It really helps to show out if you're enjoying it, as always. For all the latest education, collaboration and insight from the IPTF, please follow us on LinkedIn, instagram or YouTube All links are in the podcast description or visit our website, iptfcouk. Speaking of the website, the IPTF, as I mentioned earlier, have launched some excellent new advisor tools, which includes underwriting guides, calculators and a glossary of IP terms. So do go and check that out Fantastic resource for you advisors. And finally, do remember to claim your unstructured CPT points for the episode. Right, that's it, matt. See you next month for more let's Talk Income Protection. Take care, thanks for listening.

Speaker 1:

Let's Talk. Income Protection is produced by Sea Studios.