Corporate Financial Planning

Key person protection is an excellent way for a company to protect themselves against anything happening to key members of staff or those with specialist expertise.  The financial effects of losing this type of employee can be significant and with the right cover in place the impact can be greatly reduced.

The type of protection policy chosen will depend on the specific person and the circumstances involved.  A basic key person policy will insure in the case of death, but serious illness may cause similar financial losses and cover for this should also be considered.  The cost of key person protection varies according to a number of factors. 

Many companies do not have sufficient protection policies in place to cope with the death or serious  illness of a director or shareholder.  Shareholder protection involves life cover on the shareholders and business owners to the value of their stake in the business.  It requires a cross option agreement.  This means if a shareholder dies, the policy will provide the funds for the other shareholders to buy the deceased’s shareholding from their estate.

This simple agreement will allow the business to continue, with the ownership of the company in the right hands.

Relevant life is a very tax efficient way for directors and employees, particularly where there is no ‘death in service’ scheme in place, to have their life insurance policies set up.

The Company owns the life assurance policy and it is taken out on the director or employee with the benefits written in trust for their family.  It is not a taxable benefit in kind and would normally be allowable as a business expense for corporate tax relief.

Relevant life works on a single life basis and as such works well for small businesses that want to offer life assurance benefits, but do not have enough employees to qualify for a registered group scheme.

There are other benefits – unlike a registered group scheme, these policies do not affect the amount that can be contributed or accumulated in a pension scheme.  This is particularly useful for high earners who may exceed the lifetime pension allowance.

Premiums paid do not increase the employer’s liability to National Insurance contributions and benefits are also paid tax free to beneficiaries (inheritance tax).

A term assurance/critical illness/relevant life policy has no cash value unless a valid claim is made.

The Financial Conduct Authority does not regulate taxation and trust advice.