future profits may be at risk...is your business properly insured?
We provide products that can help businesses and their owners plan for their future. If you haven’t a business protection plan in place, talk to us today. We will look at your current situation and talk you through the available options. With this information to hand you can then decide what action you need to take.
The death or serious illness of a shareholder can have major repercussions for the future of your company. It can cause immediate financial hardship for the remaining shareholders and maybe even loss of control of the company.
Why do you need shareholder insurance?
On death, a shareholder’s shares normally pass to their next of kin and the next of kin become new shareholders in the company. The change in share ownership can lead to potential problems for both the next of kin and the remaining shareholders.
The next of kin may not want to become involved in the company and may want to sell their shares as soon as possible. The remaining shareholders may want to retain full control and ownership of the company and may not want to work with a new shareholder. Putting life cover or shareholder insurance in place can help avoid these problems.
How can life insurance be structured to protect a business on the death of a shareholder?
Life insurance policies are put in place on the lives of each shareholder. The level of cover is set at the value of the shareholding of each shareholder. In the event of a shareholder’s death, the proceeds of the policy are used to purchase his/her shareholding from his or her next of kin. The shares are then distributed among the remaining shareholders.
What are the consequences of not having life insurance in place?
The remaining shareholders may not have the capital required to buy back the shares of the deceased from the next of kin.
As a result of this, the following situations may arise:
• The remaining shareholders may be forced to take out substantial personal loans (or the company may have to find substantial funds) in order to retain ownership of the company
• If the remaining shareholders are unable to acquire the required capital sum to buy out the next of kin of the deceased, they will be forced to accept the next of kin as new shareholders in the company
• The next of kin may wish to sell their shares, if the remaining shareholders are not able to afford to buy them then the next of kin may seek to sell their share to a third party
• The next of kin may be unable to get a fair price for the shares on the open market • A competitor of the company may acquire the shares of the next of kin
What are the advantages of shareholder insurance?
Shareholder insurance can benefit both the remaining shareholders of the company and the deceased shareholder’s next of kin.
The advantages are as follows:
• A lump sum is provided from the proceeds of the life insurance policy to enable the purchase of the deceased’s shareholding from the deceased’s next of kin • No new owners come into the business
• The deceased’s next of kin can realise the value of the deceased’s share of the business – they have a ready buyer at market value
• The deceased’s next of kin do not have to become involved with a business in which they may have no expertise in or knowledge about
Is your business covered?
We provide products that can help businesses and their owners plan for their future. If you haven’t a business protection plan in place, talk to us today. We will look at your current situation and talk you through the available options. With this information to hand you can then decide what action you need to take.
Take the next step to financially protect you and your business today!
Keyperson Insurance
The future success of a business is often dependent on a few key people. A keyperson is any “key” employee, director or consultant (i.e. a fixed term employee brought in to consult on or develop a particular project e.g. – new IT system etc.) on whom the business depends for its continued success or existence.
A business may be financially and operationally impacted by the loss of a key person in the event that they die prematurely or become seriously ill.
What is keyperson insurance?
A business puts life insurance in place on its key employees with a view to compensating the business for an anticipated financial loss in the event of death of the individual covered.
The individual can also be covered for serious illness. In the event of death or serious illness of a key individual, the lump sum payment from the policy can help compensate the business for any loss of profit, or it can also be used to repay business loans, and/or to recruit a suitable replacement.
How much cover should be put in place?
Having determined who your key people are, the next question is how much you should cover them for?
Businesses can value their keyperson in general by using a multiple of their current gross salary (typically a figure of 5 to 10 times salary is used). However, the salary a keyperson is drawing (if they are also a business owner) may not be representative of their worth to the business.
The keyperson may be drawing a low salary to keep costs down, or may be keeping their income within limits so that standard tax rates apply. In this situation, a multiple of the profits attributable to the keyperson may be more appropriate (2 x gross profit or 5 x net profit are figures sometimes used).
You should also take into account the following:
• Any business loans outstanding, including any that the keyperson has made to the business.
• Estimated costs of recruiting a suitable replacement for the keyperson.
What are the advantages of keyperson insurance?
The employer pays for the cover so in the event of death or serious illness of a keyperson, the company receives a lump sum amount
• The policy proceeds can be used to repay loans owed by the business (both commercial loans and director’s loans)
• The policy proceeds can be used to replace the profits generated by the keyperson or used to recruit a replacement for the keyperson
Is your business covered?
We provide products that can help businesses and their owners plan for their future. If you haven’t a business protection plan in place, talk to us today. We will look at your current situation and talk you through the available options. With this information to hand you can then decide what action you need to take.
Take the next step to financially protect you and your business today!
Partnership Insurance
The death or serious illness of a partner can have major repercussions for the future of your business. It can cause immediate financial hardship for the remaining partners (as the business will have lost the skills of the deceased) and they may even lose control of the business as the share of the deceased is passed to his or her next of kin.
Why do you need a partnership insurance plan?
Often a partner’s share of the business will be the single largest financial asset he/she owns. On death, their next of kin may expect a substantial and immediate payment from the remaining partners.
This payment might include:
• Any capital that the partner had invested in the business
• The deceased partner’s share of undrawn profits
• Payment for the partner’s share of the goodwill
What are the consequences of not having partnership insurance in place?
The remaining partners may not have the capital required to buy back the shares of the deceased from the next of kin. As a result of this, the following situations may arise:
• The remaining partners may be forced to take out substantial personal loans in order to retain ownership of the business
• If the remaining partners are unable to acquire the required capital sum to buy out the next of kin of the deceased, they will be forced to take on the next of kin as new partners in the business
• The next of kin may wish to sell their share of the business; if the remaining partners are not able to afford to buy their share from them then the next of kin may seek to sell their share to a third party
• The next of kin may be unable to get a fair price for the share of the business on the open market
• A competitor of the business may purchase the shares from the next of kin
What is the solution?
One solution is for the individuals involved to take out life insurance on the life of each partner.
The plan consists of two parts:
• A legal agreement which all participating partners enter into - that on the death of a partner, the remaining partners will buy back the deceased’s share of the partnership and the next of kin will sell their inherited share to the remaining partners
• A life insurance policy - to provide the financial capital required by the remaining partners to buy back the deceased’s share from the next of kin
What are the advantages of this arrangement?
The plan benefits both the remaining partners and the deceased partner’s next of kin. It can be set up in a tax efficient manner with the remaining partners becoming owners of the deceased’s share without having to pay inheritance tax.
The advantages are as follows:
• A lump sum is provided from the proceeds of the life insurance policy to enable the purchase of the deceased’s share of the partnership from the deceased’s next of kin
• Provided the remaining partners have the right to buy back the deceased partner’s share no new partners come into the business
• The deceased’s next of kin can realise the value of the deceased partner’s share of the business - they have a ready buyer at market value
• The deceased’s next of kin do not have to enter into a business in which they may have no expertise in or knowledge about
Is your business covered?
We provide products that can help businesses and their owners plan for their future. If you haven’t a business protection plan in place, talk to us today. We will look at your current situation and talk you through the available options. With this information to hand you can then decide what action you need to take.
