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R05 - 2023 > 11 - Business Protection > Flashcards

11 - Business Protection Flashcards

1
Q

What is key person insurance

A

Market for life assurance

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2
Q

When is there a need for kpi

A

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

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3
Q

What are the key considerations for calculating kpi cover

A

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

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4
Q

What are the 2 methids used for calculating kpi

A

Multiple of salary

Proportion of profits formulae

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5
Q

Does insurable interest have to be shown in KPI

A

no

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6
Q

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

A

5-10

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7
Q

What is the proportion of profits formulae

A

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

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8
Q

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

A

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

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9
Q

If sum assured is more than £250,000 what should be sent to a financial underwriter

A

Supplementary financial questionnaire

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10
Q

What are the potential suitable policies for kpi

A

Term assurance

FlexibleWOL

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11
Q

Income protection for Key person

A

Multiple of salary
Proportion of profits

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12
Q

What type of company is Share protection insurance meant for

A

Intended for private limited company

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13
Q

What are articles of association

A

Basically a company’s will

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14
Q

How does a buy and sell agreement work for share protection

A

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

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15
Q

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

A

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

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16
Q

What are the 3 key elements for share protection

A

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

17
Q

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

A

Everyone knows what will happen

18
Q

What is the major downside of a buy and sell agreement

A

IHT bpr is lost

19
Q

What is across option agreement

A

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

20
Q

What is and automatic accrual agreement

A

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

21
Q

What are he downsides of automatic accrual agreements

A

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

22
Q

How can the policy be written for share protection

A

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

23
Q

What kind of trust should be used for share protection

A

Flexible to accommodate potential change of shareholders

24
Q

How are premiums for share protection treated if company pays

A

Subject to both it and NICs

25
Q

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

A

Automatically dissolved

26
Q

What will each partner have in event of dissolution of partnership

A

Capital account and share of business

27
Q

What should be included in a partnership agreement

A

What should happen if partner dies to prevent business dissolving

28
Q

What agreements can be made for partnership business interest

A

Buy and sell
Cross option
Automatic accrual

29
Q

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

A

Own life index linked term assurance written in trust

R05 - 2023 (11 decks)

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