Case study

Background

Applicant details: Forster Richardson, accounting firm - partners

Lives assured: Oliver Forster, age 39 and James Richardson, age 34

Occupations: partners and accountants

Description of occupational duties and skills:
general management of the firm, day-to-day decision-making and both practicing accountants

Company details: established 2002, five employees

	December 2005	December 2004	December 2003
Turnover	£640,001	£496,303	£314,710
Gross profit	£496,696	£334,506	£248,9001
Net profit	£198,678	£133,802	£99,560

Additional information: The firm had been valued by the firm's accountant at £1.4 million, based on their multiple of seven times' net profits.

Both partners intend to retire at 60.

The adviser had established that on either partner's death, the deceased's share of the firm would pass to his estate. Both partners had concluded that this wouldn't be appropriate and they would like funds to buy the deceased partner's share to retain control of the business and make sure their families received a monetary amount for the business.

They were also concerned that if they were to have a critical illness they would want the option of selling their share of the firm back to the remaining partner.

They already had adequate income protection to cover their salary if either were absent from work due to illness of injury.

They both had very similar roles within the business and could continue the business in the absence of either partner as long as they increased their admin staff to cope with the extra work until they employed a further accountant.

Benefit type	Life to be assured	Benefit amount	Term
Partnership protection: life and accelerated critical illness (including total and permanent disability) waiver of premium	Mr Forster	£700,000	To 60
Partnership protection: life and accelerated critical illness (including total and permanent disability) waiver of premium	Mr Richardson	£700,000	To 60

Rationale for recommendation

Both partners want to see the true value of their proportion of the firm passed to their families if they die and they both would want to remain in control of the partnership if they were left as the surviving partner.

They are both concerned that if they had a critical illness, they'd like to exit the business and receive the true value of their business in monetary form.

They already have appropriate income protection and it's clear that key person cover isn't required as both could manage the business in the absence of the other.

Therefore, a recommendation of life and critical illness, including total and permanent disability and waiver of premium, will make sure that they'll have the funds available if either party was to have a critical illness or to die to buy the other half of the firm, either from the critically ill shareholder or the executors of the estate. A double option and single option agreement will be drawn up to ensure all parties comply with this agreement.

Premium and commission information*

Life to be assured	Total premium	Total commission
Mr Forster	£367.89 a month	£6420.02
Mr Richardson	£277.48 a month	£4842.28

*Source - AEGON Scottish Equitable, 23 February 2007.