It doesn't matter what type of industry you work in. Losing a shareholder to by death or serious illness can be catastrophic. It's therefore critical to ensure that you protect your business and livelihood with shareholder protection.
One of the most damaging events a business can fall victim to is the death of a major shareholder or key worker. 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 is a life insurance policy designed to facilitate the buy back of shares from a deceased (or seriously ill) shareholder. In the event of death or critical illness, a sum of money is paid to the remaining shareholders to allow them to buy back shares from the deceased shareholder's wife or husband. In effect this allows the remaining shareholders to retain the ownership of the company and also rewards the wife or husband with a monetary value of the shares they have inherited.
There are three main ways shareholder protection insurance can be taken out.
As a rule of thumb, each person should be covered to the value of their shareholding. Most companies take out a cover for a term of 5 years and of course share values can go up and down. In this scenario, we can recommend to index link the cover which means the sum will go up every year or just cover yourselves for more than the current value to try and foresee any increase in value. It may be worth seeking professional advice on the value of the company before valuing the shares. We also generally advise clients to think about what they would want their family to receive for the value of their shares as of course, it's partly your decision on what you value your shares at.
The cost of shareholder protection insurance will depend on the below.
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