Self Ownership of Personal Insurance

Self Ownership of Personal Insurance

Self Ownership simply refers to the ownership of the insurance policies by the relevant Life Insured.  Traditionally, insurance policies in connection with Business Succession Planning Agreements have been Self Owned as a result of:

  • there being certainty that the insurance proceeds would be exempt from CGT; and
  • an unfamiliarity with the concept of Trust Ownership by advisors of business owners.

Self Ownership is appropriate when a co-owner’s equity in a business is owned by them personally and not be a related company or family trust or spouse.  When a policy is self owned the insurance proceeds are paid to the Life Insured or their Estate and credit is given for those monies to the purchasers of the equity of the business under the related Buy/Sell Option Agreement.

The obvious benefit of Self Ownership, especially where the equity in the business is owned by the Life Insured, is that both Death and Non-Death Benefits are exempt from CGT.  The only real limitation of Self Ownership, where the equity in the business is owned personally by the Life Insured, is that the continuing owners (‘purchasers‘) are unable to control the application of the insurance proceeds, where necessary, to:

  • the extinguishing of any loan secured over the outgoing owner’s equity in the business; or
  • the use of the funds for debt reduction purposes of the business, where the debt reduction was contemplated in the business succession planning arrangements.

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By Sam Roberts,
Managing Director, Accredited Specialist (Commercial Litigation)