Protect the financial viability of your business in the event of suddenly losing a Shareholder, Director or Partner owing to death.
Shareholders, Directors or Partners can arrange life assurance based on the amount that would have to be raised in order to “buy-out” the deceased participant’s share in the business. This way, the death of a principal will trigger payments adequate to meet the cost of buying the share of the business inherited by the former principal’s beneficiaries.
This sort of arrangement will normally include all the Shareholders, Directors or Partners, although in some cases older individuals may be left out, if there is an alternative strategy for business continuity, such as the introduction of another individual from within the business with ownership remaining unaltered.
Life assurance policies can either be written on a “cross-life” basis, where each principal takes out a policy on each of the others, or by each principal on his or her own life, for the benefit of the others, under trust.
It is most common to use level term assurance for this purpose, possibly with a conversion or extension option. However, there is some merit in considering increasing term assurance, since the value of the business is likely to rise with time and a degree of “inflation proofing” at outset could save time and effort later on.
Within the context of shareholder protection, it is also worth considering that Key Man insurance can protect the business – and thus the financial interests of the shareholders – in the event of the death or long-term incapacity of certain key employees. These Key employees may include – but are certainly not restricted to – the shareholder/directors.
Other forms of shareholder protection might include covering directors’ loan accounts with life assurance, so that, on the death of a director, money is available to cover the company’s liability.