Shareholder protection insurance provides shareholders with monies in the event of death or critical illness. It is designed to provide a lump sum of money to the remaining holders to enable them to purchase the shares from the deceased partner. In most companies, shares will be passed to the husband or wife of the deceased. This insurance allows the company to buy back the shareholding while also giving the wife or husband the monetary value of what the they are worth. Thus both the company are happy as they retain control and the wife/husband is financially better off.
It can cover death or critical illness of each shareholder.
In the event of death the cross option agreement will allow both parties (the remaining shareholder or the deceased beneficiary) to trigger the agreement and use the money to purchase the shares from the deceased beneficiary. If the policy includes critical illness you may choose to opt for a single option agreement. This only allows the person with the critical illness(life assured) or the remaining shareholders to trigger the agreement but does not give the option to both. The option will be decided on the out set.
If a shareholder dies or suffers a critical illness (that hits one of the definitions) then there remaining shareholders would need to place a claim with the provider. If the claim is successful the lump sum of money will be paid to the company or directly to the shareholders (depending on how it was set up). Money is then paid out as per the option agreement.
If you are one of a number of shareholders then you should look at protecting your shares. Think about what would actually happen if your company lost a major shareholder. Would you be able to buy those shares back from the deceased beneficiary at a price they think reasonable?
Successful businesses will often have shareholders who may or may not be actively involved within the day to day running of the company. But if someone is investing money within the company or buying shares they will often want to know that the investment is safe. Having this kind of insurance in place with a shareholder agreement is the best way of doing this.
For example two people in a company will often own 50/50 split. If one of the people die the other is now left with the running of the company. Key man insurance will help inject money to help the day to day running and of course this is very important. But you now may be left with someone else owning 50% of your company. That person could of course be the wife or husband of the deceased. They may of course want to sell their half of the company. What if they sell out to someone you do not get on with. This can have massive complications to your business.
For more information on how these are set up and for any quotes please fill in the form and someone will be in touch soon.