Chapter 10.2- Business Protection

Question 1

What is key person insurance

Answer 1

Market for life assurance

Question 2

When is there a need for kpi

Answer 2

If loss is likely to leD to serious financial detriment to the business

Question 3

What are the key considerations for calculating g kpi cover

Answer 3

Present cash position
Level of profits in recent past and projections 
Effect of profits
Cost of. Recruiting
Loans that could be recalled

Question 4

What are the 2 methids used for calculating kpi

Answer 4

Multiple of salary

Proportion of profits formulae

Question 5

What are the common factors used j. Multiple of salary calculations for kpi

Answer 5

5-10

Question 6

What is the proportion of profits formulae

Answer 6

Key person salary X profit last year X no of years to replace / total salary bill

Question 7

In what circumstances will premiums be admissible deductions and sums received as trading receipts on kpi

Answer 7

If sole relationship is that of employer and employee
If insurance intended to meet loss of profit
If annual or short term insurance

Question 8

What are the potential suitable policies for kpi

Answer 8

Term assurance

FlexibleWOL

Question 9

What is share protection insurance

Answer 9

Provides funds to buy. Company shares if a shareholder dies or becomes seriously ill

Question 10

What type of company is share protection intended for

Answer 10

Plc

Question 11

What are articles of association

Answer 11

Basically a company’s will

Question 12

What are the 3 key elements for share protection

Answer 12

An agreement on how to transfer shares
Insurance to provide funds
Documentation so can receive funds free of tax

Question 13

What 3 things must be considered to reach an agreement for share protection

Answer 13

Recommendation must be compared with articles of association
Must be prior agreement for how to calculate share price
Ensure IHT brp continues

Question 14

How does a buy and sell agreement work for share protection

Answer 14

All shareholders enter an agreement to say their heirs must sell the shares and surviving shareholders must buy them

Question 15

What is the benefit of a buy and sell agreement for share protection

Answer 15

Everyone knows what will happen

Question 16

What is the major downside of a buy and sell agreement

Answer 16

IHT bpr is lost

Question 17

What is across option agreement

Answer 17

Each party has the optio to sell buy within specified time period

Question 18

What is and automatic accrual agreement

Answer 18

Shareholders leave shares to other shareholders in their will or complete automatic accrual agreement which does the same thing

Question 19

What are he downsides of automatic accrual agreements

Answer 19

Growth may exceed value of polivy
Could be IHT liability
Shareholder could change will without telling other shareholders

Question 20

How can the policy be written for share protection

Answer 20

Life of another if buy and sell agreement or own life in trust for benefit of co directors

Question 21

What kind of trust should be used for share protection

Answer 21

Flexible to accommodate potential change of shareholders

Question 22

How are premiums for share protection treated if company pays

Answer 22

Subject to both it and NICs

Question 23

According to the partnership act 1890 what happens to a partnership if a partner dies without partnership agreement

Answer 23

Automatically dissolved

Question 24

What will each partner have in event of dissolution of partnership

Answer 24

Capital account and share of business

Question 25

What should be included in a partnership agreement

Answer 25

What should happen if partner dies to prevent business dissolving

Question 26

What agreements can be made for partnership business interest

Answer 26

Buy and sell
Cross option
Automatic accrual

Question 27

What policy should be taken out in cross option agreement for partnership business interest protection

Answer 27

Own life index linked term assurance written in trust