Co-Director’s Insurance, Corporate Co-Director’s Insurance and Keyperson Insurance?

 

Under a Co-Director Insurance arrangement, the directors themselves take out the policies either (a) on their own lives and put the policies in trust for the other directors (Own Life in Trust) or (b) on the lives of the other directors (Life of Another). In this case the directors must pay for the life policies themselves.

Under a Corporate Co-Director Insurance arrangement, it is the company that takes out the policies on the lives of the directors, pays the premiums and receives the sum insured in the event of a claim.

Keyperson Insurance arrangements are put in place to insure against loss of profits a company may incur in the event of a Keyperson within that company dying or becoming seriously ill. The company takes out the policy on the life of that keyperson, pays the premiums and receives the sum insured in the event of a claim.

A Corporate Co-Director’s Insurance arrangement is technically a Keyperson arrangement however under Corporate Co-Director’s Insurance the objective of the life policy is clearly of a capital nature i.e. to buy back its own shares. In that event the premiums are not admissible deductions for tax purposes and the proceeds would not be treated as trading receipts.

Under a Keyperson Insurance arrangement, the premiums can be admissible deductions for tax purposes but equally, the proceeds can then be taxable.

 

The general rules for quantifying the cover in Business Insurance

 

Keyperson Covercan be calculated using the following methods:

• multiple of salary – maximum 10 times for Life Cover (3-5 times for serious illness cover)

• multiple of profits – maximum 2 times gross profit or 5 times net

Partnership Covercan be calculated simply by dividing the value of the business by the percentage of that value held by each partner.

Co-Director Covercan be calculated simply by dividing the value of the company by the value of the shares held by each director.

The above rules are general guidelines and the partners or company directors should consult with their accountants to value their company or business.

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