What Is Shareholder Protection Insurance? How Much Does It Cost?

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Shareholder Protection Insurance pays out a cash lump sum if an insured shareholder dies or suffers a terminal illness (diagnosed with fewer than 12 months to live). The cash lump sum enables the surviving shareholder(s) to buy back the shares from the beneficiaries of the deceased shareholder.

  • It helps make succession planning as smooth as possible and allows the company or partnership to continue trading as normal.
  • Meanwhile, it provides peace of mind knowing the deceased shareholder’s family can realise the value tied up in the shares they would receive on the shareholder’s death.
guide to shareholder protection in the UK

Adding Critical Illness Cover means the plan also pays out if the shareholder becomes critically ill (for example, with cancer, heart attack or stroke).

In this guide we cover…

You will also be able to obtain instant online quotes comparing prices from Aviva, Vitality and other top UK insurers 😎

Do We Need Shareholder Protection Insurance?

Research from Legal & General shows…

  • Half of businesses have no agreement on what would happen if a business owner died / became critically ill.
  • 43% of limited companies have not reviewed their articles of association in the last year.
  • 37% of businesses said the remaining shareholders would want to purchase the shares of an absent shareholder to keep control of the company. However, most have no clear way to fund this.

The Risks of Having No Shareholder Insurance…

If a business partner dies without making a decision on what should happen to their shares, those shares usually go to their estate. They will subsequently pass to their family, who then have two options:

  • Take over the deceased’s position as a partner.
  • Realise the value of the business interest by selling it.

Neither of these options is problem-free. Problems could include:

  • The remaining business owners losing control of the company.
  • The surviving business owners gaining a sleeping partner.
  • Unhappiness among the family if they feel they have no control over the profits of a firm they’re relying on for income.
  • The family selling to a third party.
  • Where there are no natural buyers, financial problems may arise for both the family and the business.

What’s The Risk Of Dying?

The table below lays out the risk of a company director dying before age 65. Try our Life Expectancy Calculator to work out your own risk of death over a given period 😵

Risk of Death by Age 65

35 Years Old

1 in 13

45 Years Old

1 in 11

55 Years Old

1 in 9

What’s The Risk of Serious Illness?

Around 80% of Critical Illness claims are for cancer, heart attacks and strokes.

  • Around 1 in 4 new cancer diagnoses each year are in people under 60 (Cancer Research UK).
  • Almost 1 million people in the UK have survived a heart attack. Meanwhile, more than 1.2 million people in the UK have survived a stroke or transient ischaemic attack (TIA). Almost half of these are under the age of 75. (British Heart Foundation).

Critical Illness Insurance won’t cover every case of the above conditions. Less severe cases may not be included in your policy wording or only trigger a partial payout. Check definitions carefully or ask your adviser for help in this area.

How Much Does Shareholder Protection Insurance Cost?

The cost will vary depending on your needs. However, some factors which contribute to premiums are easier to control, including:

  • Amount of cover
  • Length of the policy term
  • Adding Critical Illness Insurance.

There are other factors which impact the cost that you have less control over, for example your:

  • Age
  • Current state of health
  • Smoker status
  • Lifestyle and hazardous activities.

In the table below, we’ve used our online calculator to work out the monthly cost of Shareholder Insurance with Life Insurance and with Life Insurance with Critical Illness Cover.

Each premium is for a healthy non-smoker wanting £150,000 of level cover that will remain fixed across the policy term.

10 Year Policy
Premium Calculator: Life Insurance Only
Age 35
Age 45
Age 55
Premium Calculator: Life & Critical Illness Cover
Age 35
Age 45
Age 55
Premiums calculated on July 8th, 2020
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How Do I Value My Business For Insurance Purposes?

Valuing a limited company or partnership for any reason, including Shareholder Protection Insurance, can be tricky. It will very much depend on a variety of different factors.

There’s no tried and tested method of valuing a company. This is because each business is different, even those within the same industry. That’s where the expertise of an adviser can be invaluable.

An adviser will look at a number of factors when valuing your firm to decide how much shareholder protection you need. Some of these factors include:

  • Analysis of the company’s cashflow.
  • Analysis of the company’s profits, for instance whether they’re static or increasing.
  • Multiples of net profit plus cash in bank and assets (however, this is tricky for startups and newer companies).

Different industries will often command different values, even if underlying business metrics are similar. Intangible factors will also play a part, such as the company’s reputation and relationship with clients.

How Is It Taxed By HMRC?

Firstly, premiums and the payout are usually subject to a range of taxes depending on the circumstances of you and your company. Taxation also depends on how you set up the cover in the first place. We therefore recommend you get specialist advice.

As always when it comes to taxes, it’s best to consult your solicitor and accountant before doing anything that might cause a tax liability later on.

There are three ways to buy Shareholder Insurance:

  • On a life of another basis
  • On a company share purchase basis
  • Own life under business trust.

Each option has its own tax position — read more on how HMRC taxes it here.

What is Shareholder Protection Premium Equalisation?

Own life under business trust policies may require you to equalise premiums if you and your fellow shareholders decide to each pay the premiums for the policy yourselves.

This is to stop HMRC seeing unequal premiums as a ‘gift’ or ‘transfer of wealth’ to the shareholders paying the most to those paying the least. If HMRC decides this is the case, it could have inheritance tax implications in the event of a claim.

Is It A P11D Benefit In Kind?

This depends on how you set it up. Each of the above three ways listed on how to set up cover will impact whether it is a P11D / benefit in kind — read more here.

A Cross-Option Agreement And Inheritance Tax

This is a legal document which, on the death of a shareholder, provides the option for the other shareholders to buy the shares (‘call’ option) and the option for the deceased’s family to sell (‘put’ option).

It’s essential that the company’s articles of association give both parties the option to buy / sell the shares rather than an obligation. An obligation to sell the shares could result in an inheritance tax bill as this may disqualify the shares from business property relief (BPR).

Who Are The Best UK Shareholder Protection Insurance Providers?

We work with all the best UK Business Protection Insurance providers. Below is a list of the major insurers we’ll get quotes from to achieve the most competitive terms:

  • AIG
  • Aviva
  • Legal & General
  • Liverpool Victoria
  • Royal London
  • Scottish Widows
  • Vitality
  • Zurich.

Additional Policy Benefits

Most of the top insurers now provide a number of benefits alongside the core policy, which might include:

  • 24 / 7 Virtual GP Service
  • Second Medical Opinion Service
  • Counselling and Stress Helpline
  • Nutrition and Fitness Programs
  • High Street Discounts.

Other Types of Business Protection

There are also other business protection policies that can work alongside Shareholder Protection Insurance. For example you may wish to think about:

  • Keyman Insurance
    Supplies a cash injection into the company if a key person dies or becomes critically ill. The business uses this money so it can continue to trade, for instance by providing a buffer against loss of profits or paying for recruitment and training of a replacement.
  • Business Loan Insurance
    Pays out to cover corporate debts should an individual responsible for their repayment die or become critically ill.
  • Relevant Life Insurance
    Provides personal Life Insurance your limited company pays for. Its tax breaks usually make it much more cost-effective than paying premiums personally. Ask your adviser about how you could save almost 50% with Relevant Life Cover.

Should We DIY Or Use An Expert Adviser?

Shareholder Protection is the most complex of the policies under the business protection umbrella. We don’t recommend a DIY approach — the tax position alone is a bit of a minefield.

While it’s possible to set up Shareholder Insurance yourself, to do so you’ll need to consider:

  • How much your company and its shares are worth?
  • Which provider is best positioned to meet your needs?
  • If you have any pre-existing medical conditions?
  • How long the shareholder will be in the business?
  • Whether you need a trust?
  • Whether you need a cross option agreement?

Compare Shareholder Protection Quotes & Get Expert Advice

Shareholder Protection can be difficult to get your head around when there are multiple owners with different holdings. Moreover, there are various ways of structuring the term assurance.

Thats why we have a team of business protection experts on hand to make sure you set up your cover correctly with the most competitive terms.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

If you need help protecting a shareholding please don’t hesitate to give us a call on 02074425880 or email help@drewberry.co.uk.

The staff have been very knowledgeable and I have enjoyed working with Nadeem on setting up our plan.

Kim S
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