Assigning A Key Person Insurance Policy

Key person insurance offers financial protection if a business loses an important employee. While the purchasing company initially owns these policies and receives payouts, situations arise where assigning ownership to another entity makes strategic sense.

This article explains what assignment involves, the documentation required, and key reasons UK companies may transfer their key person cover to other organisations. 

You can find deed of assignment templates here which as OK to use. We can also provide them on request.

The Assignment Process

Assigning a key person policy means legally transferring all ownership rights and beneficiary status from the original policyholder to a new entity. The assignee receives all future policy rights.

To execute an assignment, the policy owner works with the insurer to complete the required paperwork such as a deed of assignment. This formally shifts control to the assignee entity, directing any potential payouts to them rather than the original owner.

Consent is also needed from executives who are insured life under the policy before initiating assignment proceedings. All parties must agree on the change in arrangement.

Why Assign a Key Person Policy

There are a few strategic reasons a UK company may opt to assign their key person cover rather than retaining ownership:

• Joining a partnership where assigning coverage demonstrates good faith and shared commitment.
• Seeking external investment and assigning policy to investors to alleviate concerns over loss of leadership.
• Merger and acquisition deals where policy assignment protects personnel value for the buyer.
• Leadership transitions where assignment ensures continuity under new ownership.
• Securing business loans for business loan protection where the assignment is a term lenders require for funding approval.

Essentially, assigning key person insurance manifests preparedness for unexpected transitions that may significantly impact investors, partners or buyers.

Utilizing Deeds of Assignment

A deed of assignment legally documents the policy transfer. It captures details on all involved parties, the policy itself, compensation, terms, and final beneficiary designation.

Proper deeds signed by the assignor and assignee protect both interests. The documentation can also demonstrate the validity of assignments to external stakeholders like lenders.

Ensuring a legally coherent deed of assignment is vital to guarantee the policy’s assigned ownership cannot be contested.

In summary, businesses assign key person policies to provide assurance to partners, investors and buyers involved in transactions. Seeking legal guidance ensures assignments are properly structured and documented.

Read here for further information on key person insurance or to get a quote.