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  • Shareholder Protection Insurance

    Protecting you and your business...

    Shareholder Protection provides the capital for the remaining shareholder(s) to buy the deceased shares.
    The deceased shareholder's family can realise the value of their business interest whilst ensuring business continuity.
    58% of businesses had no formal agreement to establish what would happen if a business owner died. L&G 2011
    Speak to our expert independent advisers and compare all of the UK's leading business protection insurers.
    Policies can start from as little as £10 per month.
     
  • What does
    Shareholder Insurance cover?

    Death

    Should a shareholder die or suffer a terminal illness (diagnosed with less than 12 months to live) the plan would payout a lump-sum to the other shareholder(s).

    Cross-Option Agreement - Provides the right for the other shareholders to buy the shares ('Call' option) and the right for the deceaseds family to sell ('Put' Option).

    Critical Illness

    This option enables the plan to payout if the shareholder were to suffer a serious illness.

    Cross-Option Agreement - Only a 'Put' option exists giving the shareholder who has suffered the critical illness the right to sell their shares to the other business owners.

    Keyman Critical Illness Cover
  • How does
    Shareholder Protection work?

    Stage 1:

    A shareholder dies or suffers a critical illness condition as defined in the insurers terms.

    Stage 2:

    The other shareholder(s) make a valid claim with the insurer as per the policy terms.

    Stage 3:

    The insurer pays the sum assured
    to the other shareholder(s).

    Stage 4:

    That shareholder or their family can then be bought out.

    Keyman Life Insurance Claims Statistics
  • Do we need
    Shareholder Protection?

    If business owners have a sizable percentage of their personal capital tied up in the company then shareholder protection can be an important policy to hold.

    What is the risk of death?

    Based on ONS life expectancy data (2008-10), the chances of someone passing away within the next 10 years are as follows:

    30 years old
    40 years old
    50 years old
    1 in 112
    1 in 53
    1 in 23

    Research from Met Life in 2012 revealed that 21% of people have suffered long term ill health during their working life so critical illness cover is a very important policy addition.

    Business Protection Statistics
  • Your Key
    Policy Options

    Being Independent Insurance Advisers we pride ourselves on being the experts, knowing every insurance product we offer inside out and back to front. Here's how we work -

    The Fact Find:
    We will talk you through the options available and capture vital information about the person(s) to be covered.

    The Research:
    We go out to all leading business insurance providers to gain the most competitive quotes.

    The Report:
    We email you a short report with our product and insurer recommendations for the various options we've discussed. When you are happy to go ahead in many cases we are able to complete the application for you over the phone.

    Insurance Experts
Unbiased Insurance Advice
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Useful Tools


Business Insurance Infographic
Shareholder Life Expectancy Calculator
Get Group Insurance Quote
Business Protection Question and Answer

Overview


What is shareholder protection?

Without initial planning and consideration if a director or business partner dies the surviving directors could run the risk of the shares passing to someone with no interest in the company.

A protection policy taken out on the relevant shareholder could ensure the surviving business owners have the right to and are able to afford to buy the deceased's share of the business from his or her estate.

Such business protection ensures difficult questions are avoided and the beneficiaries of the deceased's estate can realise the value of their share of the business.

Why protect the shares of a director

If a business partner dies without making specific provisions for their share of the business their interest in the company will likely pass to their estate. The family then has two alternatives

  • A member of the family could takeover the deceased's position as a partner.
  • The family could realise the value of the business interest by selling it.

Neither of these avenues is problem-free. If a member of the family takes over the deceased's position as a partner there is no guarantee that he or she will be able to make any contribution to the business. In fact, in some cases their presence could be detrimental to the business.

A sleeping partner who is not involved but is entitled to a share of the profits may be a huge burden to the remaining partners. Also the family may be unhappy to be in a position where they have no effective control over the profits of the business which they may be relying on for income.

If the interest is sold the remaining partners may find themselves working with an unwelcome new partner. Or indeed there may be no natural buyers, in which case financial problems may surface not only for the family but also for the business.

How does director protection insurance work?

By arranging Directors Protection or Partners Share Protection you are able to ensure the remaining partners have the right and the financial backing to buy the deceased's share of the business should the worst happen. Each partner takes out a life insurance only or a life and critical illness policy written in the trust of the other partners.

Cross Option Agreement

In the process of setting up the appropriate business protection it should also involve setting up a cross option agreement with all the directors/partners in the business, enabling the remaining directors or partners to purchase the share of the business from the deceased's estate.

This agreement in turn provides the dependents with a willing buyer and with cash instead of shares or an interest in the business ensuring the right people remain in control of the business.

The individual partners pay the premiums of the policy, as protection insurance premiums tend to be based on personal factors such as age, gender and the sum assured the premium payments do not necessarily reflect the benefit each surviving partner may recieve in the event of a claim.

Premium Equalisation

To account for the variance in premium costing relative to share holding the total monthly premiums can be apportioned according to each of the partners share in the business.

The research

A 2011 study by Legal & General carried out with the Institute of Directors took place to understand the security of assets, shares and cash flow of businesses with some of the highlights detailed below.

  • 95% of businesses had at least one key individual.
  • 43% of businesses had unprotected corporate debt.
  • 38% of business owners expected their business to fold within 18 months of the death or critical illness of a key person.
  • 33% of businesses had no form of share protection.
  • 58% of businesses had no formal agreement to establish what would happen in the event of the death or critical illness of a business owner.
  • 70% of businesses had not reviewed their company agreements in the last year.


Shareholder Protection Graph

Taxation of shareholder protection

As each individual shareholder takes out the policy themselves they will pay the premiums out of their taxed income and will not receive income tax relief on those premiums.

As the policies tend to be set up in trust any proceeds will not normally form part of the deceased's estate and thus will not be subjuct to a potential inheritance tax liability.

As with any financial product it is important to consult a tax expert to ensure your own specific position regarding any potential tax liability.

Business protection trusts

Shareholder protection policies are often set up in trust where each partner would request the protection policy be set up on their life under trust for the benefit of the other partners.

In such a case the other partners are likely to be appointed as trustees. In the event of a claim, the other partners as the beneficiaries of the trust would then have available the money to buy the seriously ill or deceased partner's share of the company.

More information

As with the other guides to business protection, this shareholder protection overview should provide you with a good basic understanding of the policy's value in ensuring the future of the business during such difficult times.

Should you require further information, advice or guidance please do not hesitate to call us on 0800 612 7897.

Client Reviews
02/03/2014  KH14

My income protection...
After recently going self employed I searched around for Income Protection Insurance. After speaking to one of the Drewberry Insurance advisors I was given all the necessary details...


22/02/2014  

No pressure, excellent service.
An excellent service with a range of competitive options, good advice, no pressure, all round very pleased...


19/02/2014  

Great advice!
I found the help offered was good and proper guidance given. Also no pressure. I was given several options on e-mail and once I had had a chance to look through them in my own time...

Publisher: Drewberry

Life Expectancy Calculator


We have designed this calculator using data from the Office for National Statistics to help you understand the risk of death during your working life. Simply enter your details below and find out...
Current Age
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Frequently asked business protection questions


I am researching shareholder protection and wanted to know the purpose of the agreement
We are a small firm considering keyman insurance as there are 4 or so key members of the team we would really struggle without. How would we go about placing a monetary value on these individuals?
I keep hearing people talk about key man insurance but what does it actually cover?
Published by Andrew Jenkinson
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Drewberry Insurance are a London based independent insurance brokerage providing insurance services to individuals and organisations
throughout the UK.
Our focus is to provide a great resource through our website and our expert advisers to help you make an informed decision when considering your financial protection .
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