shareholder protection INSURANCE
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What is Shareholder Protection Insurance?
Shareholder Protection Insurance is a life insurance policy set up to
facilitate the buyback of shares from a deceased estate.
One of the most damaging events a business can fall victim to is the death of a major shareholder. Should a shareholder or owner die unexpectedly, the event can have a serious impact on the company, not to mention the shareholder’s family.
Shareholder Protection Insurance allows the buy back of shares from either the deceased or ill shareholder. This allows the company and surviving shareholders to retain ownership and control of the company. It also rewards the wife or husband with the monetary value of the shares they have inherited.
The process of buying back shares involves purchasing the shared back from the estate of the deceased (or critically ill) shareholder. A Shareholder Protection policy is designed to facilitate this buyback. In the event of death, terminal illness or critical illness, a lump sum of money is paid to the remaining shareholders. This allows them to buy back shares from the deceased shareholder’s wife or husband.
Compare Shareholder Protection Insurance
How Does Shareholder Protection Insurance Work?
There are three main ways to set up Shareholder Protection Insurance.
- Life of another policy- This method is generally used when there are only two major shareholders. Each shareholder will own the other’s policy and will be the beneficiary of the other’s policy. Premiums are paid for by the individual out of their own pocket, which avoids any tax liabilities upon claiming.
- Company Share Purchase – Under this method, the company actually owns the policy and pays the premiums. In the event of a claim, the company receives the money and is able to buy the shares back from the deceased wife or husband. Tax laws can be quite complex with this variation so we would always recommend you seek professional tax advice when setting up a policy this way.
- ‘Own life’ policy held under a business trust – This option involves each shareholder taking out their own policy and placing the benefit in a business trust. In the event of a shareholder’s death, the money can be used by the remaining shareholder to purchase the shares back and redistribute them to the surviving shareholders.
Calculating The Amount of Cover Needed
- Valuation of the business: Determine the value of the business based on a proper valuation method, such as a business appraisal or financial statements. This valuation should take into account the company’s assets, liabilities, cash flow, market value, and future growth prospects. The valuation should be updated periodically to reflect any changes in the business’s value.
- Ownership structure: Understand the ownership structure of the business, including the percentage ownership of each shareholder. Consider the number of shareholders and their respective ownership stakes, as this will impact the amount of insurance needed to fund a buyout in case of a claim.
- Share Value: Estimate the amount of cover to fund the buyout. This may involve calculating the total value of the shares to be bought out based on the valuation of the business and the ownership stakes of the shareholders, and then determining the appropriate amount of insurance coverage to ensure that funds are available to complete the buyout in case of a claim.
- Other factors: Consider any other factors that may impact the amount of cover required, such as inflation, future growth prospects of the business, changes in ownership structure or business strategy, and any potential tax implications.
What Is The Cost of Protecting Shareholders?
- The amount of cover – The more cover the more expensive it will be.
- The Term – The longer the term the more expensive it will be. This is due to the risk of covering someone of an older age.
- The age of the life assured – The older the person is the more expensive it will be.
- Critical Illness – Adding critical illness to a policy will make it more expensive.
Shareholder Protection Tax Treatment
Why Protect Your Shareholders ?
Losing a shareholder to death or serious illness can be catastrophic. It is therefore critical to ensure that you protect your business and livelihood with shareholder protection.
- A safe and stable business plan – A shareholder’s death is a surefire way of seriously jeopardising a company’s strength and stability. By taking out shareholder protection insurance, shareholders and investors can enjoy peace of mind. Should a fellow shareholder pass away, surviving shareholders will not have to worry about finding the money to buy back the shares. Instead, they will receive funds that allow them to buy up the deceased’s shares quickly and efficiently.
- Support for family members – Although shareholders generally have an in-depth understanding of how to run the business, inheriting family members will normally have limited know-how. So, no experience of how to perform the ongoing duties of a shareholder. At the same time, it can be very damaging for a company to have a new member on board who has no idea what they are doing. This is where shareholder protection insurance helps. Most would rather receive a cash value of the shares and move on with their lives. Of course, money can never bring back the loss of a family member, but it will go a long way in helping that family financially.
The Benefits of Shareholder Protection
- Financial protection: It provides a source of funds to facilitate the smooth transfer of shares in the event of a claim. It ensures that the remaining shareholders have the financial means to buy out the shares of the deceased or disabled shareholder, helping to maintain the continuity of the business and avoid potential disputes or disruption.
- Business continuity: Shareholder Protection insurance helps to safeguard the continuity of the business by providing a mechanism to facilitate the transfer of ownership in case of a claim. It helps ensure that the business can continue to operate without interruption and that the surviving business owners can maintain control and management of the business.
- Fair valuation: It helps establish a fair and agreed-upon valuation of the business, which can be used as the basis for the buyout of shares in case of a claim. This can help prevent disputes among shareholders and provide a clear process for determining the value of the shares to be bought out.
- Protection for shareholders’ families: Shareholder Protection insurance can provide financial protection for the families of deceased or critically ill shareholders by ensuring that the shares are bought out at a fair value, providing liquidity to the deceased or disabled shareholder’s estate.
- Tax planning: Shareholder Protection insurance can be structured in a way that provides tax planning opportunities, such as qualifying for Business Relief for inheritance tax purposes in the UK. This can help mitigate potential tax liabilities and optimize the transfer of shares in a tax-efficient manner.
- Peace of mind: It provides peace of mind to shareholders knowing that there is a plan in place to protect their investment and ensure the orderly transfer of shares in the event of a claim.
Overall, Shareholder Protection cover can be a valuable tool for businesses and shareholders to protect their interests, ensure business continuity, and provide financial security in case of unexpected events.
Should you get Shareholder Protection with or without Critical Illness cover?
Critical Illness cover is an additional feature that provides a lump sum payment in the event that a shareholder is diagnosed with a specified critical illness as defined by the insurance policy, such as cancer, heart attack, or stroke.
Including Critical Illness cover can provide additional financial protection in case a shareholder becomes critically ill and is unable to actively participate in the business. It can then facilitate a buy back of the shares
There are many shareholder protection providers in the UK who offer critical illness as part of the contract. Policies can vary greatly in terms of the illnesses that are covered so do your research and find out which ones offer the best cover. Our advisors can help you do this.
Why Choose Us?
- MyKeyManInsurance.com started in 2008 we are the longest-serving business protection specialist in the UK.
- You deal directly with us we do not pass on your details to any third parties.
- The ONLY Website where you can quote and apply online.
- FCA-authorised advisers with years of experience in business insurance.
- We are a whole market broker able to quote from all the UK providers.
- GUARANTEED Lowest Shareholder Protection Insurance Rates In The UK.
- Free trust set up.
- 5 Star Trust Pilot reviews, our customers love us!
How to get a quote
3 Simple Steps
SUBMIT
Submit the details of the shareholders who need to be covered.
COMPARE
Compare the quotes online
APPLY
Fill out the application and get covered today.
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What people are saying about us.
Excellent service with easy to
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Jody was very helpful in explaining the options and I thoroughly recommend his company
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We received a wonderful service from mykeyman and will be using them again. The service and product knowledge from team is excellent. Everything was made easy to understand. The price was the best we found too.
First Class Service
The standard of service was first class. They kept me up to date with progress on my Relevant Life Policy, followed up promptly following delays caused by my medical practice being slow in compiling reports, and responded instantly and clearly to any questions I had.
Further Reading
Shareholder Protection Tax Treatment
Check out our guide on the taxation of shreholder protection insurance. Make sure everything is set up correctly in the most tax efficient way.
Cross Option Agreements Explained
Shareholder Protection policies normally always need a cross option agreement. Check out our guide here.
Key Man Insurance Guide & Quotes
Maybe its key person insurance you need instead. Check out our guide for all you need to know about getting your key people insured.
MyKeyManInsurance.com
UK’s Number One Business Protection Specialist.
