Many businesses take out life insurance policies to protect the interests of important individuals such as directors, partners and certain key employees. These life insurance policies are set up in the same way as a personal life insurance policy; however the company usually owns the insurance and also pays for it.
Lifebroker provides some examples of how this vital life insurance protection can work for you and your business:
Protecting Shareholder Directors
In a ‘Close Limited Company’, five or less directors will usually make up all the shareholders of the company. Assuming this is the case, it goes without saying that these individuals would not want a competitor company to acquire these shares. This can happen if a directory-shareholder dies and their beneficiary decides to sell them to a competitor.
To counteract this, individuals can set up a life insurance policy in which all Director-shareholders have an interest (insurable) in the life of all the others. Upon death of one of them, the life insurance 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.
A simple term life insurance policy is normally used for this and 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
Not only can Limited Companies benefit from life insurance; Business Partners can protect their interests using a similar scheme. Term life insurance allows the surviving partner to buy back the deceased partner’s portion.
Keyperson Life Insurance
The keyperson or keyman in a business can be someone with specialized skills or knowledge crucial to the business, so much so that if they were to pass away the business might suffer financial loss or even cease trading. In this situation the business can take out a key man life insurance policy on that individual. It is normal for a term life insurance policy to be established in the name of the business, so as to ensure entitlement to any claim proceeds.
What to do next
Lifebroker can offer quotes online; however it is best to contact them over the phone to speak about your personal requirements.