Perhaps he or she is very key to your business and without them turnover could fall and profits wither.
Have you thought about what would happen if your business partner or co-director were to die? Their shares in your business would very likely go into their estate and you would find yourself in business with your partner’s partner? Or even with your partner’s partner’s new partner!!!
Ian has been in the insurance industry for many years – he sold his business some six/seven years ago, on the occasion of an enormous birthday, and decided to put his feet up and to do some business coaching.
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They were concerned about what would happen on the death of either one of them to the business. Their shares would pass to their widows and the other Director would find himself in business with his ex-Partner’s widow or her new boyfriend or new girlfriend.
I did submit an application form on behalf of the older Director to two companies who I thought would treat him favourably, but both of them turned him down.
So, we wrote a £500,000 Life Assurance policy on the life of the younger Director which was written under a business Trust for the other Director. They also put into place an agreement which said that upon the death of either one of them, then the other would buy the shares from the deceased Partner’s widow and the £500,000 policy was in place to do that, at least for one of them – for the other, the payment would have to be spread over a period of time; or so we thought.
I was introduced to a specialist insurance broker who deals only in helping people who have problems getting insurance and they were able to offer him a £500,000 policy at a very reasonable extra premium with another insurance company.
I provided the Trust document which went with that and happily we were able to complete that piece of business with policies on both of them, written under Trust for each other with a cross-option agreement in place to make the whole thing work.
In addition, we wrote two more policies on the life of the younger Director – we put into place a Relevant Life policy for £600,000 on his life, written under Trust for his wife and sons.
Relevant Life allows a company to write a Life Assurance policy on the lives of one of its employees, including of course Directors; the policy has to be written under Trust for the individuals’ loved ones, but is owned by the company, paid for by the company, and therefore gets tax relief as a business expense.
In addition, we wrote some Key Person Cover on the life of the younger Director – that is, we wrote a Vitality Life Serious Illness policy for a total of two years’ salary on his life – that meant that if he suffered from a heart attack, or stroke or cancer, £60,000 would be paid into the business to go some way towards replacing him and perhaps to find someone to take his place in the short term.
I am in the process of discussing with him a long term Income Protection scheme which will provide an income for him should he be ill, on a long term basis.
Life has changed enormously for this guy.
He’s very key to his business and, without him, his IT company would be in serious difficulties.
We wrote on his life £100,000 of Vitality Life and Serious Illness Cover, which provides an injection of capital into his business should he suffer from a Serious Illness, to go some way towards replacing him within his company.
We have also written £1,000,000 worth of Life Assurance, which is written under Trust for his wife and their new daughter.
The sum of £1,000,000 is not, as many people think, a massive amount of money in one sense; if you add up the total amount of earnings of this successful Director, it far exceeds £1,000,000 and, if he were to die, then his widow would need that £1,000,000, again to go some way to replacing him.
Again, I am discussing with him Income Protection to provide an income on a long term basis should he fall ill over a long period of time.
His initial earnings were of £40,000 a year and he was looking for some protection. Again, we put together a package which included £1,000,000 of Life Assurance, written under Trust for his wife, which will go some way towards replacing him. This policy, as with all the other policies, is written through to age 65 with the idea being that by then he will have built a pension scheme and capital so he won’t need his Life Assurance.
In addition, he has £60,000 of Serious Illness Cover, again by Vitality, which will give £60,000 of cover in the event of him suffering a Serious Illness – he is a little more vulnerable doing the job he’s doing than other people. And also going into place is an Income Protection policy which will cover him if he’s ill for a long period of time.