Buisness Protection Flashcards
What are the two principle approaches for selecting sum assured on KPI?
Multiple of salary
Proportion of profit
What is the equation for proportion of profit KPI?
When would proportion profit KPI be utilied
Only when the company is making profit.
How is KPI undewriten?
Normal medical underwriting.
Extra financial underwriting
What is the purpose of financial underwriting?
Is the company taking out an appropriate level of insurance.
This is to prevent moral risk and that the company is only insuring for the loss it would make.
How is financial undewriting performed?
Looking at company accounts, business plans, and the methodology for arriving at the selected sum assured.
Might have a fianacial questionnaire, particularly if the amount is over £250,000
What are the Anderson Rules? (Rules that state when tax relief is due on KPI) 3
Employee and employer relationship
Covers costs from the loss of the employee.
Short term. (Might not be able to be renewable)
What are the objectives of shareholder protection?
Provide protection
Maintain flexibility
Maintain tax efficiency
What forms of shareholder protection agreements are there?
Buy and sell - must be bought and sold
Cross option - if one party wishes to but or sell, it must happen.
Automatic Accrual - no shares handed to beneficiary
Single option - only one person makes decision to prevent forcing out.
What is the disadvantage of buy and sell?
Creates a binding contract for sale, meaning business property relief is nulified, and IHT must be paid.
What is the advantage of cross opinion?
No binding contract of sale, so benefits from business property relief. (Most favoured agreement for this reason)
What is a cross option agreement usually backed with?
A level term assurance policy
What should be arranged with an automatic Accrual agreement
Life cover
What is single option often used with?
CIC
What is beneficial about term insurance for share holder protection?
Best way forward where proceeds go straight to the company.
No surrender value, so it can be lapsed if the individual leaves.
Cheap.