Many businesses would not function without the input of their key owners and key people. These usually include directors/partners, managers and key account winners.
To protect the continued success and profit of the business a company can protect itself, its future and its key people by insuring against their loss in the event of death, ill health or critical illness (see Health Protection). Insurable interest between the employer and the life being protected is required at outset. We have summarised some of the options further below, but would suggest that as these issues can be complex you take advice from Chapters Financial Limited or your Independent Financial Adviser.
Keyman Assurance* (See taxation below)
Life cover effected by the employer on the life of the key person to ensure that in the event of their death a lump sum is paid to the employer to allow them to smooth over the loss to the business and its profits. Usually effected for a short term of up to 5 years. Advice will be needed to calculate an appropriate level of cover.
As an alternative, an employer may choose to introduce a cost effective Death In Service Benefit Scheme (DISB) to protect the families of its staff.
To maintain the control of your business in the event of death of a director/partner, an inexpensive way of protecting both yourself and your fellow directors/partners is to effect a specific protection policy.
As a commercial arrangement, these policies are usually written in trust in conjunction with a binding double option agreement. With planning this will allow the remaining owners to have funds available to purchase the deceased's shareholding/practise from their beneficiaries. Legal advice should be sought to ensure the double option agreement and trust are suitable.
*Taxation of Premiums & Benefits
To allow the premiums for these policies to be an allowable expense, it is sensible to gain confirmation from your inspector of taxes before you proceed. The benefits are usually treated as a trading receipt. Careful consideration will be needed for directors/partners.
Please note that this is for guidance only and we recommend that you seek further advice from an Independent Financial Adviser before proceeding further. The Financial Conduct Authority does not regulate taxation and trust advice.