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Co-Director Insurance
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As a company director, you will likely play a significant role and impact the current and future success of the business. In many companies, there are multiple directors with various skillsets assuming different roles and responsibilities. The sudden death of any director can have significant financial consequences for a business
On average, businesses lose 60% of their revenue following the death of a founder.
What is Co-Director Insurance
This is business-specific life insurance that can provide compensation to shareholders of a company.
This agreement allows the company the opportunity to purchase a deceased director’s shareholding from their next-of-kin. One or more Life Cover policies will be taken out and owned by the business. This allows the business to purchase shares from the deceased directors’ beneficiaries.
Having Co-Director Insurance allows the company to put a structure in place to deal with the business consequences of the death of a Director.
Who needs Co-Director Insurance?
Co-Director insurance can be used by businesses of all sizes. Whether you are a relatively small business with two directors or a larger business with multiple, Co-Director Insurance is vital and can help prevent financial heartache.
The fact it will provide the funds to purchase shares from the deceased next of kin will alleviate many cash flow and financial issues following the death of a director.
Why is Co-Director Insurance important?
Building a successful business often takes many years of dedication and hardship. Therefore, protecting and minimising risks to your business is important.
Most businesses have systems in place to cover property, equipment, and other items. However, a business’s most important asset is its people and it is imperative that they are protected.
Should something happen to a director or shareholder within your organisation, do you have a structure in place to deal with this event?
The effects of not planning for such events can be devastating to a business.
We pride ourselves on supporting our clients by providing comprehensive guides on various types of cover.
You are welcome to check out the information below.
Editorial Staff
Last Update: May 2022
Managing the risks to your business
As a director or shareholder within a business, risk management is always front of mind. When it comes to health statistics, unfortunately, they may not be as you would expect.
Below we look at statistics from the Central Statistics Office (CSO). They illustrate the likelihood of shareholders within a business dying before age 65.
Number of directors/ shareholders in the firm | Chance of dying before age 65 |
2 | 21% |
3 | 29% |
4 | 37% |
5 | 44% |
6 | 50% |
7 | 55% |
8 | 60% |
As expected, the more directors or shareholders involved, the higher the chance that one may die before reaching age 65.
Could your business survive without Co-Director Insurance?
The loss of a director or shareholder will likely be a stressful and emotional time. As well as the emotional stress, the death of a director can often cause financial implications.
The surviving directors and shareholders may be faced with several challenges. Some of these may include:
Lack of capital available
The deceased directors next-of-kin may want to sell their shareholding. However, it may be difficult to raise sufficient funds to purchase these shares. This may lead to a loan being required or cause cash flow issues.
Inexperience
As the deceased shareholding will become part of their estate, this means there is a chance someone else may enter the business. The new owner of the shares may not have the business acumen or experience of the now-deceased director. Such arrangements may cause issues for a business.
Shareholding and control
In some cases, the now deceased director may have been a majority shareholder in the business. If they owned more than 50%, their next-of-kin may now be the new majority shareholder.
They may then decide to take control of the business themselves if they do not wish to sell. Should they wish to take control themselves, this may cause problems internally. The surviving shareholders will have limited control.
The above highlights some of the potential issues that may arise from not having Co-Director Insurance in place.
Anyone who co-owns a business should consider having a policy in place. If you are unsure of the process or have any questions, our team would be happy to assist.
Benefits of Co-Director Insurance
Attempting to future proof a business is one of the most important decisions you can make.
Some of the benefits of Co-Director Insurance include:
- Peace of mind – The remaining company directors know they will have the ability to maintain control of the business.
- Commercial – Funds will be available to ensure the deceased directors’ shareholding can be purchased by the business.
- Flexibility – The beneficiaries of the deceased will not be obliged to become a part of the business and can use the proceeds of the sale of the shares instead.
- Structure – The surviving directors can plan and continue accordingly with minimal potential disruption to the business as a whole.
Frequently Asked Questions (FAQ's)
Not having Co-Director Insurance in place may leave your business vulnerable. The death of a fellow Director will be a stressful time but can also have a financial burden. The deceased Directors next-of-kin may want to be compensated financially or may want to control their new shareholding.
Having Co-Director Insurance in place mitigates these risks and ensures surviving Directors retain control of the company as funds are available to put towards the buyback by the company of the deceased shares.
Having Co-Director Insurance in place allows you to ensure that:
- On the death of a participating Director, the surviving shareholding will retain control of the company.
- Dependants of the deceased shareholder realise the value of the share in cash.
- Fair and just provision for the dependents of the deceased Director.
- Peace of mind.
The level of cover required will vary depending on the situation. Variables such as the valuation of the company and the number of Directors are the most important factors.
From here, the cost of each policy can be calculated. At this point is it best practice to speak with a financial advisor. At emero, we specialise in this area of financial advice and would be happy to assist and answer any questions you may have.
Having Co-Director Insurance in place will provide several benefits such as:
- The cost of the premiums can be borne by the company and not the individual directors.
- There is no benefit-in-kind liability in respect of premiums paid by the company.
- Ability to access capital to pay the deceased next-of-kin.
- Certainty of the process of passing shares should a Director die.
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Why Choose emero?
We ensure you get the most suitable coverage for your specific needs.