Directors share protection
This is similar to partnership share protection. Many companies are set up as private limited companies with the shares held by the directors of the company. If a director dies then excluding any specific arrangement to the contrary the shares will pass to that person’s estate. The estate will probably want to turn those shares in to cash and therefore the shares could be sold, perhaps to a rival firm. In order to avoid this, the remaining directors or shareholders in the company may wish to have the right to purchase those shares, and if they do, then they will require the funds to do so. Term life insurance would be one option to providing such funds.
How the arrangement is to be set up will depend on various factors, including inheritance tax. Advice should be taken, at the time of setting the arrangements up, as to what is best for the company.
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Key Person Life Insurance