Business Financial Planning

Shareholder Protection

Many businesses have more than one owner or shareholder. Should one of the shareholders die, what would happen to the business?

Unless the company’s articles provide to the contrary, a shareholder can leave the shares by Will (or if there is no Will, they follow the rules of intestacy). Most small businesses do not want another shareholder to pass their shares without consent to avoid admitting a complete stranger into the company.

A life insurance policy can be taken in conjunction with a cross option agreement to control how the shares are distributed on death. The other shareholders receive the insurance money to buy the deceased shareholder’s shares, and the business can continue to operate without uncertainty.

Key Person

Would the death or critical illness of an employee have a large financial impact on your business?

Key Person cover provides insurance on the key individual with the benefit paid to the company. The purpose of this cover is to provide a cash injection to the business to replace lost profits or recruit a temporary/permanent replacement. These are often used to protect top sales executives.

The amount of cover available is based on a multiple of salary of the Key Person.

Loan protection

For small businesses, business loans or commercial mortgages may have been personally guaranteed. In the event of the guarantor dying, the bank may require immediate repayment of the loan. Should the deceased have a Director’s loan account, this also needs to be repaid to the estate.

Where will this money come from?

Loan protection is a policy taken out on the life of a key individual or individuals so that any money due from a claim can be used to help pay towards any outstanding debt or loan. This can help the business survive beyond the death of a key individual.

Relevant Life

A Relevant Life Plan is an individual ‘death in service’ life policy and may be of particular interest to contractors who are an employee of their own limited company.

It is a term assurance plan designed to pay a lump sum benefit if the person covered dies or is diagnosed with a terminal illness during their employment, within the term of the plan.

The term assurance premium is treated as a business expense.

Relevant Life Plan’s are similar to most other types of life cover but can be a very useful tax efficient alternative providing valuable death in service benefits for you and your employees.