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A tricky shareholder protection case involving an older director with a serious heart condition and a healthy younger director, requiring careful consideration, knowledge and planning to reach a good workable final solution, while being careful to avoid a few banana skins on the way.
When our client approached us to help him find £500,000 life insurance, both he and we knew that it wouldn’t be easy. Aged 55 our client had severe artery disease, sufficient to have required a total of six stents to be fitted over a three year period. The client wanted to ensure that if he died his wife would receive £500,000 and that his 50/50 business partner would be left with 100% of the business.
We began by further researching the client’s medical profile and potentially available options with insurance company underwriters. A specialist insurer suggested they might be able to consider offering terms at an indicative premium of £1182pm, but we felt we could do better! Medical underwriting requirements included full GP reports with cardiologist letters and a medical examination. When final underwriting results came through we had managed to obtain terms at a premium of £365pm. Brilliant!
However the job was still not finished.
A further issue related to the valuation of the business which it turned out was worth significantly less than the amount our client wished his spouse to receive in the event of his death. We explained that there was a straight forward solution to this problem. Rather than conflate the need for a sufficient amount of death benefit for his spouse with the requirement to ensure that he and his business partner received each others shares in the event of death, we suggested he first take out a shareholder protection policy based on a fair and justifiable business valuation. The realistic business valuation given was £200,000 so we suggested a policy for £100,000.
Secondly we suggested he take out a separate life insurance plan for the benefit of his spouse as a Relevant Life Plan. Not only would he effectively pick up tax relief on the lion’s share of the total protection premiums but it also helped to significantly reduce the impact that ‘premium equalisation’ for shareholder protection would otherwise have had on his business partner, who of course would be liable for personal income tax on our client’s shareholder protection life insurance premiums paid for by the business. This was especially significant given that the premiums for his cover were 770% of the cost the premiums for his fellow shareholder, due to his business partner being significantly younger and with no rateable health conditions.
We also gave the client the option (which he took) of further increasing his total life cover by a further £100,000 bearing in mind how difficult it might be to obtain more cover in the future should his health change, as £600,000 was the maximum level the insurer could offer without the need for any further medical evidence.
We arranged the necessary policies for both him and his business partner (£100,000 shareholder cover and £500,000 relevant life cover each) and assisted our clients with the necessary trust documentation for all the policies, making sure that in the event of a claim the right amount of cover ended up in the right place quickly and without any further tax liability. We also provided them with a draft life company double option agreement for them to share with their lawyer.
Hello and Welcome!
We are proud to launch our new website which with a great deal of consideration, has taken over a year to develop.
The new site is very different to the old one and we thought it might be useful to explain some of the thinking that has gone into the design and content.
Firstly we were aware that our website had not kept pace with the changes in our business and especially our client groups. Put simply any visitor to the old site might well conclude that our life cover services were designed only for people with pre existing health conditions. However the truth is that we arrange life cover for a much wider range of clients, including people with no health conditions, business owners and clients with occupational and/or overseas travel issues.
Secondly we knew that the old website looked dated and the new site needed a much fresher approach. Financial services websites generally are often criticised for being somewhat dull, so it was important to us that visitors find the new site visually stimulating and engaging.
Our clients receive a bespoke personal service and we wanted the new website to visually send a clear message to visitors, that we are different. We have tried hard to make the site easy to read and visually engaging by breaking information down into manageable amounts. We have used space to de-clutter and chosen a font which feels personable (and different again) and is easier on the eye.
Functionality was another key consideration. We have tried to make the new website easy to navigate and as simple to use as possible. We have tried to make it easy for customers to communicate with us, whether making an enquiry or asking us any questions (e.g. email, phone, live chat). It’s really easy for visitors to share a link to any page they think may be of interest with a friend. Underlying all of this is a clear invitation for visitors to engage with us.
Finally we wanted to create a website that visitors find genuinely useful and compelling. In short we want people to leave our site feeling their visit has been worthwhile and the key issue here is the quality of the content.
Here we have tried as much as possible to put ourselves in the shoes of our clients. We asked ourselves time and time again ‘what are the questions that customers really want answers to?’ ‘How are customers feeling as they approach applying for life insurance?’ ‘What concerns do they have?’ ‘What information might help customers feel more confident’? For example, some people with pre-existing health conditions may fear that life insurance premium rates would be completely unaffordable in their particular situation. They may fear the embarrassment explaining that it was unaffordable. For some these potential negative outcomes might cause them to avoid making any enquiry at all. It is for this reason that we have decided to include a selection of real cases, showing actual premium and cover amounts achieved for some of our customers on the diabetes and heart condition pages of the site. Throughout the website we have similarly tried to include lots of additional information which we think visitors might find useful.
When it comes to life insurance, we believe that what customers are looking for above all, is to feel confident in the decisions they are making. We hope you find our website of genuine value and we look forward to being of service.
A few years ago a bad thing happened.
We received a telephone call from a potential new client asking to cancel our appointment with him and his business partner because his business partner had died suddenly the day before. The purpose of the meeting had been to arrange some life cover for each of the two business partners so that if either of them died the other would be provided with enough money to buy out the other’s shares in the business.
However shocking the sudden loss of a close friend and business partner was, the troubles didn’t end there.
The family of the dead partner had never had any involvement in the day to day running of the business but of course they had depended upon the business for their income. What were they going to do now?
The two business owners had been skilled professional engineers and been responsible between them for most of the business reveue. With only one fee earner remaining the business faced significantly lower revenue meaning that the business could not continue to fund at the same level both sets of income – something would have to give.
How did this story end?
The remaining shareholder who was in his late 50’s and had been hoping to retire in a few years was forced to remortgage his own home to provide the capital necessary to buy out his ex business partner’s shares – putting up his own home as security was the only way he could raise the necessary required funds. Big change for him then and for his own family.
Here’s a thought – what if I said this man was lucky! How could that be? Surely he was unlucky?
Well obviously he was unlucky because he hadn’t put a robust disaster recovery plan into place in time and it ended up personally costing a him a fortune in added debt, delaying his retirement by years and putting himself, his family and his home at risk. The cost of the insurance premiums necessary to prevent this personal calamity would have been a fraction of what he ended up having to pay.
And the lucky bit? Well this all happened a few years ago at a time when he was able to raise sufficient extra equity from his property to finance the share purchase.
It could have been much worse – it could have happened now.
Because as we all know – right now persuading banks to lend money is a completely different proposition compared to a few years ago and likely to be even more difficult when the bank learns that the business has just lost a key person who was a responsible for a earning a significant proportion of business revenue. Put bluntly for a great many business owners the answer right now is going to be no.
And then what? A forced sale to a third party perhaps?
If you a have any concerns about protecting your business and your assets why not contact us at Moneysworth 0845 430 5200. We can help you take back control and make a plan to insure against the huge costs and risks of this future potential catastrophe for your own business.
