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 get quotes from all of the UK's leading business protection insurers.

What is it for?

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.

What does it 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.

How does it work?

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 passing away?

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.

Do I need cover?

Your Key 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 protection insurers 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.

What are my options?
Compare Top 10 UK
 Business
Insurers
Need help? 
Call us on 
-
Our in-house Experts are here to provide
FREE impartial advice!
Type of Cover
Company Name
 
No. of Employees
 
verisign seal
verisign seal
 
Drewberry Insurance services are rated 4.9 / 5 based on 137 client reviews
Our Insurers - Aviva, LV, Friends Life, PruProtect, Ageas Bright Grey, Scottish Provident, Legal & General, Exeter Family Friendly
Sunday TimesFinancial TimesDaily Mail

Get Quote - Compare Top 10 UK Insurers

 Takes approx. 60 seconds
5 Star Review
Fantastic Service!
J Austin - 24/03/2015

My husband and I needed insurance cover quickly when I realised my husband was losing all our previous protection when he left permanent employment. The team at Drewberry stepped in and helped guide us, recognising our need for speed. I couldn't have asked for more...

5 Star Review
Friendly and Helpful Staff
J Mashru - 23/03/2015

Robert Harvey was very helpful and took the time to understand what I specifically required from my income protection insurance. This is the first time I have taken out this kind of insurance and Rob was very thorough with all the relevant information during the process. ...

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.

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 0208 432 7333 oe email us at help@drewberry.co.uk

Life Expectancy Calculator

Your Current Age
   years  
Retirement Age
   years  
Gender
verisign seal
We have designed this calculator using data from the Office for National Statistics to help you understand the risk of death during the term of your mortgage. Simply enter your details to find out...

Your Life Expectancy Results

Our Mission...

We are insurance experts passionate about educating our clients and providing a 5-star service.

We are here to help you understand the financial risks you face so that you can make informed decisions when it comes to protecting yourself, your family and your assets.

Changing the world one policy at a time!

Frequently asked group insurance questions

We have existing shareholder protection arrangements which might need to be extended, what is the maximum age you can take out cover to?
I am a director of my own limited company and have been considering life insurance and came across relevant life cover. Is relevant life cover appropriate and how is it different to a personal life insurance plan?
I want to ensure my family are able to realise the value of my share in our business should the worst happen, how can I ensure my valuation is suitable?
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?
Compare Top 10 UK Business Insurers
Need help? 
Call us on 
 -
 Our in-house Experts are here to provide
 FREE impartial advice!
Our Principles
1. You Come First
We are a client focused business who always aim to put you first.
2. We are Experts
To provide you with the best advice, we need to know our stuff!
3. We are Human
We are real people with feelings who are here to help you.
4. We are truly Independent
We believe the best advice has to be completely unbiased.
5. We are here to Educate
We are here to educate you so you can make informed decisions.
Contact Us

We would love to hear from you, whether you are enquiring about our services, a career, or a business partnership.

Email us at help@drewberry.co.uk

London Head Office
Corporate & Wealth Advice

020 8432 7333

Brighton Office
Protection Advice

01273 646 484

Leicester Office
Health Advice

020 8432 7333


© Copyright 2015  |  All Rights Reserved
Published by Andrew Jenkinson
Financial Services Authority