Case studies

Business Protection Case Studies

Kusal Ariyawansa, Appleton Gerrard

A local business owner, Craig, was referred to me by a friend who had noticed that the success of his business had had little effect on his lifestyle. Given his reluctance to offer such forthright opinions on these matters (a common sentiment), let alone solutions, my friend simply insisted that Craig would have much to gain by speaking to me.

When I first met Craig and asked him how I could be of help, he didn’t seem that keen. Why would he, when everything was going well with his business expanding at the rate of Manchester City’s wallet? What he hadn’t considered were the “what ifs”.

His business consisted of teams which source, bought and renovated properties for landlords. Whilst the up-front margins were healthy, there was no recurring revenue. Had any of his key team members suffered an illness or disability, the entire chain would break.

To solve this financial shortfall we recommended the following:

  • Creation of separate companies for each team with the team leader becoming a 51% shareholder and Craig owning the rest. This created loyalty and a sense of purpose from the employee-cum-director
  • Shareholder protection to cover any potential lost revenue and values as justified by their accountant. This was through 5-year Renewable Term Assurance policies
  • Tax efficient life assurance for each director through a Relevant Life Policy. Here the company pays the premiums which is a business expense earning corporation tax relief whilst the policy payments are tax-free subject to the “wholly and exclusively test”

The result of doing the above was

  1. Craig knew that his business could continue  had anyone died or suffered a serious illness
  2. The former employees, now directors, felt they had a purpose as a major shareholder to enhance its value which created loyalty
  3. Each director now had life assurance (to protect their "value") which was cheaper due to the tax efficiency of the Relevant Life Policy
  4. Each director knew if they died or suffered a serious illness their family would have sufficient money

So, as a result of the reassurance of the continuity of his business, Craig was able to move up a notch his level of holiday, restaurant, concert and (maybe also!) his number of visits to watch Man City!

Claire Walsh, Pavilion Financial Planning

The trustees of a small Brighton based charity approached us to arrange life cover on the charities’ Chief Executive.  The charity only has a handful of paid staff and in addition to overseeing all of the day to day operations of the charity the Chief Executive is also responsible for driving all of the fundraising activities.  The trustees were concerned that should anything happen to their CEO the charities activities and funding streams would be severely hit and that they might even be forced to close. 

We explained that Key Person Insurance would provide a lump sum in the event of the death or illness of their CEO which the charity could use to replace depleted revenues and fund the recruitment and replacement of the CEO.  The trustees felt that if something happened to the CEO it might take some time to find a suitable replacement and that even once that person was in post it might take them up to a year to build the charities activities and funding streams back to what they previously were.  On this basis we recommended life cover of 2 years turnover for the charity and a lower level of critical illness cover to keep the premiums within the charities budget.  We arranged this cover coordinating between the trustees and the CEO until everything was finalised. 

The trustees were relieved to have peace of mind that the charities vital work is protected should anything happen to their key member of staff.