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Ownership Protection

Fighting over control Who will control the business if one of you dies?

 

What is Ownership Protection insurance?

 

Ownership Protection can also be known as Partnership Protection or Shareholder Protection. It pays out a cash sum if an insured Partner or Shareholding Director dies or suffers from a critical illness. The money can be used by the remaining Partners or Directors to buy the shares of the affected Partner or Shareholder.

 

How much cover is needed?

 

Up to the full value of a Partner's or Director's shareholding. It is wise to re-evaluate the amount of cover needed periodically.

 

Who pays the premiums and are they tax-deductible?

 

The Partners and Directors can pay the premiums from their net income.

Alternatively, the company can pay on their behalf but this will usually be classed as a benefit in kind and the director or partner will then face a tax charge.

 

How are premiums calculated?

 

The premiums will normally depend on a few factors:

  • The age of the Directors/Partners to be insured
  • The health/medical conditions of the people to be insured
  • The value of the shareholding of the Partner/Director
  • These factors mean that each Director or Partner’s premium will vary.

 

Tax treatment

 

Although the premiums generally do not attract tax-relief, if the policy pays out this is usually tax-free.

 

Do we need Ownership Protection?

 

Ask yourself; if one of our Company’s major shareholders or partners dies, who will their shares be left to? What effect will the new shareholder(s) have on the interests of the original surviving shareholders?

 

For example:

 

A Managing Director who owns 50% of XYZ Ltd suddenly dies.

 

His shares are left to his wife who has no business experience. She therefore takes guidance from her grown-up children, who have no interest in the continuation of the Company but are rather more concerned access the cash value of the shares.

 

Or she could seek to give or sell the 50% shareholding to another party that the other Directors view as potentially hostile.

 

Ownership Protection insurance can resolve these issues.

 

Let’s consider the same example again:

 

A Managing Director who owns 50% of XYZ Ltd suddenly dies.

 

Previously, the shareholders established a “share option” agreement, backed by Ownership Protection Insurance.

Although the shares are left to his wife, under the terms of the share option agreement she must offer to sell these to the other surviving shareholders. Using the proceeds of the Ownership Protection insurance, the surviving shareholders are able to buy the shares from the spouse.

 

Result:    The original shareholders retain control of the company and 

               The widowed spouse receives a fair cash equivalent for the shares.

 

Contact us for a quotation for Ownership Protection Cover

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"Money in Person" is a trading style of Medics Financial Services Limited who are Authorised and Regulated by the Financial Conduct Authority. We are entered on the Financial Services Register No 131216 at  https://register.fca.org.uk/. Registered in England and Wales No. 1723058 Registered Address: 14 Albert Road, Tamworth, Staffordshire, B79 7JN.

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