Shareholder Protection Insurance

Shareholder protection provides the surviving shareholders with enough funds to buy the shares from the family.

Get in touch
Shareholder Protection Insurance

What is Shareholder Protection Insurance?

Your business is no doubt one of your most valuable assets. One of the most difficult events to occur within a business is the loss of a shareholder, which can impact the business hugely. Fortunately, you can protect against this with shareholder protection.

Shareholder protection can also be known as succession planning as it can remove a sense of uncertainty following the death of a shareholder, or if they were to be diagnosed with a serious illness.

When a shareholder of a business passes away, the shares often become part of their estate which usually goes to the family. This means the family now has control over the shares and what to do with them. In some cases, this can result in a potentially inexperienced family member trying to have influence over the business, or they may simply just sell the shares to the highest bidder.

Shareholder protection provides the remaining shareholders with enough funds to buy the shares from the family. This can provide peace of mind to the shareholders and protect the future of the business.

However, it also ensures that the family receives a fair sum of money, which may be of more benefit to them than the shares.

How does shareholder protection work?

Losing a key shareholder of the business can be difficult enough without then having to work out how you are going to stabilise the company moving forward. Shareholder protection provides that much-needed safety net when the unexpected happens.

Shareholder protection will pay out a lump sum in the event of a successful claim, on a valid policy. The level of cover is based on the value of each shareholders individual shares. It is important to speak to a specialist Business insurance adviser when trying to value the shares in any Business.

The premiums are calculated based on the level of risk to the insurer, which is dependent on age, lifestyle and any pre-existing health conditions. The cost may also increase if you choose to include critical illness cover.

The benefits of shareholder protection

Shareholder protection allows you to have a ready-made succession plan in place. It can provide the remaining shareholders with a plan of how the insured shareholder’s part of the business will be allocated.

For example, imagine you have 3 shareholders of a business. Shareholder 1 owns 50% of the business, which is worth £5m, while shareholders 2 and 3 own 25% each. If shareholder 1 passed away, the insurance policy would provide the capital for shareholders 2 and 3 to buy the shares off the family, and they would now own 50% each.

Without the policy, the family of shareholder 1 may be forced to sell the shares elsewhere if the remaining shareholders could not raise the funds.

This type of protection also allows you to purchase the equity without taking cash out of the business or having to borrow the funds, which will give the business a bigger chance of returning to some sort of normality.

If you would like some further guidance on whether your business would benefit from taking out Shareholder Protection Insurance, get in touch today.

Request a Callback