This type of insurance helps partners or shareholders of a business buy out the terminally ill persons share of the business. Even if you did have available funds to buy a partners share, it may be preferable to have a suitable insurance plan in place. We are well placed to advise partners and shareholders on arranging suitable protection.

How it works:

Each partner or shareholder takes out life cover, or a life and critical illness policy. The premiums can be paid by the individual or the business. Then each of the policies are put into a trust for the other partners. A contract called a ‘cross option agreement’ is then entered into by each partner which is a reciprocal agreement that guarantees:

Most businesses have personnel who are critical to its functioning, known as key persons, those who would be difficult to replace. Key person insurance covers the business against financial loss which has been incurred as the result of a key person’s critical illness or death.

How it works:

A key person policy is put in place, which is owned and paid for by the business. This policy covers the life and/or critical illness of a key person in the business. A lump sum is then paid to the business in the event of a claim for limited companies and LLPs. In the case of partnerships a policy is taken on an own-life basis and put into a trust for the other partners.

This type of policy helps a business pay-off any outstanding loans, mortgages, or overdrafts in the event of critical illness or death. This can be particularly beneficial when a partner has provided a personal guarantee for a loan. This type of protection works differently depending on the business type, as follows:

Limited companies & LLPs - A life cover policy or life & critical illness policy is set up. Then, when a claim is made, a cash sum is paid directly to the business. The business can then use these funds to reduce or even clear the company's outstanding loans or debts.

Partnerships - All policies are put into a trust for the partners of the business

This is a tax-efficient alternative to personal life cover, and it is now possible for a business to take out a life insurance policy for the benefit of your family. Because the business pays the premiums as an allowable business expense, it can mean savings of up to 50% for higher-rate tax payers.

Because the policy is written in trust for the benefit of your family, this means that it does not form part of your estate for inheritance tax purposes. The maximum amount of cover will depend on your age and earnings at the time of application. All relevant life cover ceases by age 75 at the latest. Critical illness cover cannot be included.