Shareholder Protection Insurance

There are three main ways shareholder protection insurance can be taken out:

• 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 each 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 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 shareholders death, the money can be used by the remaining shareholder to purchase the shares back and redistribute them to the remaining shareholders.

Most of the time a cross option agreement will be used along side the policy. Please check out our blog on cross options agreements.