Why would I set up a 'life of another' arrangement?02 December 2014
The way in which the policy should be written reflects the purpose of the insurance. This could be to protect the company against loss of future company profits or to let it repay a loan. It’s a life of another policy because the company applies for the policy and is therefore the policy owner, with the key person being the life assured.
The company can apply for the policy because it has its own legal identity. The authorised signatories of the company will sign on behalf of the company and the key person will sign as the life assured. As the policy owner, the company is responsible for paying the premiums. If the key person dies or becomes critically ill, the company will receive the claim proceeds. To make sure the company receives the proceeds, the life policy shouldn’t be held in trust. Remember that the cover is being taken out to protect the company. And the company decides how to use the claim proceeds.