2. Financial protection: illness and business

Question 1

Why are protection needs for illness higher than for death? (2)

Answer 1

More likely to become ill than die
Higher financial burden from illness than death

Question 2

Calculation for level of cover required for Key Person Insurance?

Answer 2

current GP

x

key person’s pay
_________________
total wage bill

x

est. no. yrs for co. to recover

Question 3

When are business protection policy premiums an allowable business expense for CT? (3)

Answer 3

Anderson Principles:
- policy is short term (not whole of life)
- policy covers expected loss of profits (not for e.g director’s loan)
- must be for an employee and wholly & exclusively for business purposes

Question 4

CT treatment for business protection policy proceeds/gains?

Answer 4

Taxable for CT

Question 5

Describe the Automatic Accrual partnership protection scheme

Answer 5

Each partner has own life policy under trust for their dependents

a) Deceased partner’s share is allocated to surviving partners
b) Deceased’s family compensated for loss of shares by policy proceeds

Question 6

Describe the Buy-and-Sell partnership protection scheme

Answer 6

Each partner has own life policy under trust for co-partners

a) Deceased partner’s executor is obliged to sell share back to partnership
b) Partnership funds this from policy proceeds
c) IHT business property relief not available

Question 7

Describe the Cross-Option partnership protection scheme

Answer 7

Each partner has own life policy under trust for co-partners

a) Deceased partner’s executor has the option to sell share back to partnership
b) Partnership funds this from policy proceeds
c) IHT business property relief is available

Question 8

Are sole traders treated as personal clients or business clients?

Answer 8

Personal