Key Person Insurance
Key Person Insurance also known as Keyman Insurance is a policy that is taken out on the life of a key person. Key people are those that are relied upon by the business whether that is to design products and systems, to generate new business, or if they have specialist skills that are crucial to the success of the business.
Key Person Insurance is an insurance often overlooked but it's vital. The survival and profitability of the business could be affected disastrously if you lost one of your key people through death or serious/ critical illness.
The policy is set up and paid for by the company, with any lump sum benefits also being paid to the company in the event of a claim. The funds from an insurance pay out could be used to help replace lost profit, or to find and hire a replacement for the insured key person.
The premiums on such a policy will be allowable as a business expense if conditions laid out by HMRC are met.
Shareholder Protection is insurance designed to pay out a lump sum on the death of a shareholding director. The lump sum then provides the surviving shareholders with the funds to purchase the shares from the deceased’s family.
A death of a shareholder can be extremely damaging to any business. For example shareholders may have important voting rights, which directly affect the running of the business. Losing a shareholder would normally result in these rights passing to the deceased shareholder’s beneficiaries, such as their family.
A Shareholder Protection policy will be written under a special form of business trust so that any proceeds payable will be paid to the surviving shareholders. The business shareholders should also set up an agreement that details how shares will be treated in the event of death or critical illness. These agreements are called cross option agreements.
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