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Protecting key people in your businesses

Within many businesses there is a requirement to insure the various assets that it owns. The trading premises, machinery, vehicles, stock etc are all key and so are insured in the event of damage, loss, theft etc. One major asset that often gets overlooked, however, are the shareholders, directors and key individuals who contribute to the business. The loss of any of these individuals can have significant ramifications, therefore there are certain key areas that should be considered.

Shareholder cover

Businesses will often have agreements in place to spell out what happens if a shareholder dies. Typically the surviving shareholders want to buy the deceased’s shares from their estate and the estate want to receive the monetary value rather than retain the shares. However, how do you ensure that this happens and how is the share purchase funded? If business X is valued at £2 million and has two equal shareholders and one of them dies, how does the surviving shareholder ensure that they can buy the deceased’s shares and how do they raise £1 million to purchase them? A simple cross option agreement underpinned by a life insurance policy can provide a low cost and effective solution.

Key person cover

If a person who is key to the success of a business dies, what financial impact could this have on the business? It may well be a business owner but not always.  For example, a high performing sales person with a good contact book; a key product designer who is fundamental to the success of developing products. The loss of any person that is key to the business can have a significant impact upon the short term profitability of the business. Again, a simple life assurance policy can protect against such an eventuality, providing funds to the business to help them navigate through a difficult period.

Relevant life cover

Many owners of businesses will put life cover in place to protect their families and the standard way of doing this is to either pay for the premium personally from their post-tax income or for the business to pay the premium, in which case it is deemed as  P11D benefit. Either way, the cost of implementing cover is unnecessarily expensive and inefficient. A Relevant Life Plan is a specific type of insurance policy that can provide life cover in the same way but the premium can be paid for by the business and is not deemed as a P11D benefit for the individual. This reduces the cost and effectively allows you to pay the premium from gross as opposed to net  income, subject to certain criteria.

A business risk audit can highlight what potential risks of this type exist within your business and enable you to protect against such risks and benefit from potential costs savings. If this could be of use then do get in touch, email enquiries@cowgills.co.uk and one of the team will be in touch.


The information was correct at time of publishing but may now be out of date.

Wealth Management
Posted by Chris Harrington
22nd May, 2020
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