Protection for Your Business

It may come as a surprise to some to hear that a lot of insurance policies are taken out by businesses to protect the interests of important individuals such as directors, partners and certain employees.

Protecting shareholder directors

In a 'Close Limited Company', five or less directors will usually make up all the shareholders of the company. If this is the case, it's usually also true that none of these individuals would want a competitor company to somehow aquire these shares - this could give control or influence to a dangerous adversary. This unlikely situation can quite easily happen if a directory-shareholder dies and their shares are passed to a beneficiary, who then decides to sell them to a competitor.
To avoid this sticky situation, individuals in this position can set up a Life Insurance policy in which ever director-shareholder has an interest (insurable) in the life of all the others. Upon death of one of them, the policy will pay out and can be used to buy the shares back, to be distributed evenly to the rest of the shareholders in the company.
The type of Insurance policy usually employed for this is usually a Term Life Insurance policy. The sum insured represents the assessed value of every director's shareholding, and each shareholder takes out a separate policy, which will in turn benefit the rest of the directors.

Business Partner arrangements

It's not just Limited companies that can benefit from this type of policy. Business partners can protect their interests using a similar scheme. Life cover will allow the surviving partner or partners to buy back the deceased partner's portion of the shared business.

'Keyperson arrangements'

A 'keyperson' in a business can be someone with specialised skills or knowledge crucial to the business - i.e. they would be difficult or even impossible to replace. If that person were to die while still employed, the business might suffer financial loss, so the business can take out a life policy on that individual, since it has an insurable interest in their continued contribution to the business. Normally, a term life insurance policy is taken out in the name of the business, so as to ensure entitlement to any claim proceeds.

'Employee arrangements'

Sometimes, even selected employees enjoy financial protection from their employers through a death-in-service life insurance policy. The sum insured is normally up to four times the insured's annual salary - and where many employees are protected, a group policy can also be set up. Level term life insurance is normally used in these situations, and the benefit is not taxed as a benefit in kind. In addition, the company will receive Corporation Tax relief on premiums.

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