Why is a cross option agreement required for business protection insurance?

I am researching shareholder protection and wanted to know the purpose of a cross-option agreement and what this means for my business.

Question asked by Luke Drake
Compare Top 10 UK Insurers
FREE Independent & Impartial Advice
Type of Cover
Company Name
 
Number of Employees

Answered by Tom Conner

cross option agreement can also be known as the double option or put and call agreement and it is clear to see why.

Do I need a cross-option agreement for Key Person Insurance?

As the preferred vehicle for shareholder protection insurance the cross option agreement provides the surviving shareholders with the option to buy the deceased business owners share of the business.

In addition to the surviving shareholders being able to call their option to buy the shares, the legal representatives of the deceased’s estate also have the option to sell the shares of the deceased business owner to the remaining shareholders.

In either case, whether the remaining business owners want to buy the shares or the legal representatives want to sell, the agreement ensures the option is exercised.

The cross option agreement is set up in this manner to ensure there is no binding sale, i.e. in certain circumstance neither party could exercise their option which means business property relief for inheritance tax purposes can be preserved.

A cross-option agreement is an important part of shareholder protection

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.

Sam Barr-Worsfold, Business Protection Expert at Drewberry, offers valuable information and advice regarding Shareholder Protection Insurance.

 A cross-option agreement is the backbone to any Shareholder Protection policy, so it needs to be set up correctly. Putting together a cross-option agreement can be complicated, but fortunately Drewberry has a team of business protection experts on hand to help. You can call us any time for advice on Key Person Insurance and cross option agreements – we’re available on 02084327333.

Sam Barr-Worsfold
Business Protection Expert

cross option agreeement
 
shareholder protection
 
business protection
 
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
Compare Top 10 UK Business Insurers

Frequently Asked Employee Benefits Questions

 
I am a company director and I’m looking at benefits for some of my staff...
I’m in the process of setting up my own business, but have yet to hire any employees. While I know...
 
I’ve been looking into arranging Group Income Protection Insurance for my employees to provide...
 
I am a company director and have been made aware of both Keyman Insurance and Relevant Life Insurance...
Need Help? Live chat now and get an instant answer from our Experts...

Neil
Pensions

Victoria
Insurance
Our Latest Reviews
Jocelyn Griffith
16/08/2018

Very easy to deal with. Adviser was knowledgeable and clear about options. It was a pleasure to use this broker and I would happily recommend to others.

Hilary Hughes
19/08/2018

I feel very grateful to have found Drewberry to help me find the kind of policy I needed. I have received an excellent level of service from Rauri who I would recommend highly, and Danielle, who is part of Rauri's team.

Helen Crocker
09/08/2018

Really helpful, explained everything clearly, explored different options thoroughly and efficient communication. Would definitely recommend.

We are rated 4.9/5 based on 1742 independent client reviews.
To read more of our independent client reviews click here →
REVIEWS
EXCELLENT
4.92 / 5 Average
1757 Reviews
H Hughes
Overall Rating
I feel very grateful to have found Drewberry to help me find the kind of policy I needed. I have received an excellent level of service from Rauri who I would recommend highly, and Danielle, who is part of Rauri's team.
A Howard
Overall Rating
Had a great experience dealing with Jake, really helpful and very patient. Would recommend to friends and family. Many thanks Andy Howard
J Griffith
Overall Rating
Very easy to deal with. Adviser was knowledgeable and clear about options. It was a pleasure to use this broker and I would happily recommend to others.
A Garrard
Overall Rating
Drew Berry acted very professionally from start to finish. The advisors were very knowledgeable and helpful, and gave me superb guidance as to which cover would suit me best. Oliver who completed all the finer details and set up the policy was a great credit to the company, and I would like to thank him personally, and Drew Berry as a company for arranging cover to give me peace of mind. I would thoroughly recommend this company.
J Chandler
Overall Rating
Drewberry were very helpful and very efficient in finding the right insurance cover for me.