The death of a key person or shareholder can have significant impacts on a business and threaten its ability to continue running. With many business owners being time-poor, advisers will want to minimise the number of requests for information made to the business. Understanding financial underwriting limits can help minimise the amount of paperwork involved and streamline the process.
When setting up a business protection policy, providers will require details of the company finances. For high sum assured cases there is likely to be a greater amount of information required. This enables providers to check there is a sufficient insurable interest to warrant the amount of cover requested. This may involve businesses needing to provide proof of earnings, proof of a loan or a completed financial questionnaire.
Questionnaires are a common form of financial evidence and could be requested for all types off business protection. Questionnaires will typically address the reason for cover and the impact on the business if the insured person dies or is incapacitated.
For key person cover this will include information about the person’s remuneration, the profit/turnover of the company and the profit/turnover attributable to the key person.
Where cover is being taken to protect a business loan, questions will centre on the reason for the loan, the amount, level of repayments and the reasons why the person covered is important for the company to be able to repay the loan.
For shareholder protection the questionnaire will look to help the underwriter understand the value of the business, who owns what percentages and whether there is a single or double cross agreement in place to ensure that the shareholder’s representatives will sell their shares in the company to the other shareholders.
Depending on the responses given, providers may ask further questions causing further delays in the process. To make things easier, some providers allow the questionnaire to be conducted over the telephone. This helps ensure underwriters can gather all the required information first time round.
Most providers will have a set limit on the level of sum assured that can be requested without an automatic requirement for a questionnaire. The length of the questionnaire may also vary depending on the level of sum assured. If the sum assured is below these limits, a questionnaire may still be requested if the insurable interest is unclear.
For key person and shareholder protection policies the limits are generally the same. The graph below shows where different providers set these limits.
*AIG will ask basic financial questions in their online underwriting journey if the sum assured exceeds £1,250,000 for life and £650,000 for CIC. Full financial questions are not required until £3,000,000 for life and £1,500,000 for CIC
**For Life cover, Aviva will ask for a short Financial Questionnaire to be completed if the sum assured is between £1,000,000 – £2,000,000. However, if it is between £2,000,000 – £4,000,000 you will need to complete a Full Financial Questionnaire. Similar for CIC they request a short questionnaire between £500,000-£1,000,000 and full for £1,000,000-£2,000,000.
***If The application is submitted via paper, Scottish Widows will not request further financial evidence until £1,000,000 for life and £500,000 for CIC
Proof of earnings
To establish the value of a key person, providers may request proof of their earnings. Providers will generally accept proof in the form of:
- The most recent P60;
- A letter from an accountant or
- The most recent company accounts.
*LV= do not set a standard limit for automatic requests for proof of earnings
It is important for advisers to be prepared for requests for financial evidence as this can avoid the need to go back to the business multiple times to obtain the necessary information. For more complex cases it is advisable to speak to an underwriter in advance to ensure all the necessary information can be gathered first time around.
Our research shows that AIG, Old Mutual Wealth and Scottish Widows have generous financial underwriting limits for business protection.