Spectrum Financial Advice Shareholder Protection Guide

What is shareholder protection? Learn everything you should know about shareholder protection insurance with this Spectrum FA shareholder protection guide.

Contents

  1. Spectrum FA Shareholder Protection Guide
  2. What is Shareholder Protection Insurance?
  3. What is Shareholder Critical Illness Cover?
  4. Why is Shareholder Protection Important?
  5. How Does Shareholder Protection Insurance Work?
  6. If Critical Illness Cover is Added, What Illnesses Will Be Covered?
  7. How Much Does Shareholder Protection Insurance Cost?
  8. Who Is Responsible for Paying Shareholder Protection Policies’ Premiums?
  9. Who Should Have Shareholder Protection?
  10. How Can Spectrum FA Help You with Shareholder Protection?

Spectrum FA Shareholder Protection Guide

Spectrum FA have assisted companies across diverse industries all over the UK protect their businesses’ future with suitable business protection insurance policies for many years. As such, we have vast experience in sourcing & arranging shareholder protection insurance for companies of any size – and we have used this experience to create this shareholder protection guide.

Whether you simply want to know just what shareholder protection is or are considering taking out a policy and are not sure how to proceed, this guide to shareholder protection insurance will tell you everything you need to know.

Alternatively, you can learn more about shareholder and/or other available types of business protection insurance by contacting our team of experts today.

What is Shareholder Protection Insurance?

Designed to protect a company from the potentially damaging financial implications of one of its shareholders’ or partners’ death, shareholder (otherwise also known as director share or ownership) protection insurance typically consists of life insurance to which critical illness cover may be added.

Contact Spectrum FA now to arrange for a no-obligation review and/or learn more about shareholder and other types of business protection insurance.

What is Shareholder Critical Illness Cover?

Added to a shareholder protection (life) policy, but can be taken out independently, critical illness cover protects a company in the event of a shareholder/partner being diagnosed with a specified critical illness. This could have a huge impact on all involved and the individual diagnosed with the critical illness may not be able to continue their involvement in/with the business.

Conditions and illnesses covered can vary between different providers’ policies, and while some may only cover the conditions set as “standard cover” by the ABI (Association of British Insurers), many policies offer a wider range of conditions (see below for more detailed information).

To learn more about shareholder protection and/or critical illness insurance, please get in touch with Spectrum FA now.

Why is Shareholder Protection Important?

When a company partner or shareholder passes away, their shares are typically passed on to their estate, i.e. their next of kin or some other beneficiaries. These family members or heirs/beneficiaries then have a choice as to what they will do with their inherited interest in the company and may either:

  • Take the deceased shareholder/partner’s role in the business on or
  • Sell the shares to realise their financial value

Either way, their decision could present the company with potentially serious problems.

Shareholders/partners’ families frequently have very little to do with a company and as such often have little to no knowledge of what a business does or how it operates.

If they decide to take on a deceased shareholder/partner’s role within a company, their lack of knowledge – which could be coupled with lack of commercial experience in general – could result in their involvement with the business’ daily affairs leaving remaining shareholders or partners facing substantial difficulties and frustrations.

In the long run, this could have a significant detrimental effect on the company’s smooth running and profits. This could, of course, equally apply to other beneficiaries.

If, on the other hand, the beneficiaries/family decide to sell the shares, the company’s remaining partners or shareholders may have little or no say with regards to whom they are sold to or how they are sold.

Even if heirs/beneficiaries consult them about this, finding a suitable buyer can be difficult and time consuming. This could leave both the deceased partner’s family and the company with financial difficulties.

The need to sell these shares quickly could then result in them being sold to undesirable new owners like, for instance, hostile competitors. In the worst case scenario, this could result in the business being dissolved and employees being made redundant.

What’s more, many companies’ shareholders and partners often also act as guarantors for business liabilities like development and/or other necessary loans; commercial mortgages, other asset finance and/or overdraft facilities.

When a guarantor unexpectedly passes away or is rendered unable to continue working by a significant illness, lenders (investors, banks, other financial institutions) could demand immediate repayment of outstanding balances in full.

Unless a company has access to the necessary capital to make these payments, the business could face substantial financial difficulties.

Whether a partner/shareholder is a guarantor for commercial liabilities or not and whichever decision heirs/beneficiaries make, the death of a shareholder/partner can clearly put the future financial security and growth capacity of a company at significant risk.

Shareholder protection can prevent this from happening. Contact us now to find out how.

How Does Shareholder Protection Insurance Work?

As mentioned earlier, shareholder protection policies are designed to protect companies from the risks the death or critical illness (if selected) of one of their shareholders or partners would present to their businesses.

They do so by paying out a pre-determined amount of money to the company/remaining shareholders in the event of a death.

Remaining shareholders can then use this lump sum to immediately buy their deceased partner’s shares from his/her heirs/beneficiaries and consequently remain in control over the business.

Should you have shareholder protection? Contact us now to request a free review.

If Critical Illness Cover is Added, What Illnesses Will Be Covered?

ABI standard conditions covered by most policies include:

  • Multiple sclerosis, stroke & kidney failure
  • Major heart attacks & major organ transplants
  • Multiple specific cancers (as defined) & coronary artery bypasses

Other illnesses or conditions covered by many policies either as standard or as optional extras may consist of:

  • Respiratory and/or liver failure (advanced stage), benign brain tumours and/or aorta graft surgery
  • Bacterial meningitis, aplastic anaemia and/or traumatic brain injuries
  • Heart valve replacements/repairs, CJD (Creutzfeldt-Jakob Disease) and/or Alzheimer’s disease/dementia
  • Coma (and any permanent symptoms associated therewith), cardiomyopathy and/or motor neurone disease
  • Encephalitis, total permanent paralysis/disability and/or open heart surgery (and median sternotomy)
  • Parkinson’s disease and/or HIV contracted via blood transfusions, work-related accidents or physical assaults
  • Eyeball removal, permanent blindness and/or multiple (permanent) system atrophy
  • Loss of a limb (hand or foot) and/or permanent deafness/loss of speech
  • Progressive supranuclear palsy (permanent), spinal strokes and/or primary pulmonary hypertension
  • Strokes accompanied by long-lasting (min. 24 hours) symptoms, third degree burns covering 20 per cent of the head, face or body surface area and/or systemic lupus erythematosus accompanied by considerable complications

Some policies may also offer to cover a diversity of other conditions/illnesses as optional extras. Spectrum FA advisors can ensure you get the most comprehensive cover at competitive premiums. Get in touch with our specialist advisors now to learn more.

How Much Does Shareholder Protection Insurance Cost?

Shareholder protection premiums depend on whether:

  • The partner/shareholder smokes
  • Which, if any, other add-ons/optional extras are selected

Other factors involved in premium calculations include the shareholder/partner’s age, medical history etc.

Premiums would cost more, for instance, for an older partner with a long history of ill health than they would for a younger partner who has always been in good health.

Then, of course, there is the cover level (i.e. the amount to be paid out in the event of a death or critical illness), which obviously significantly affects premiums.

The more interest a shareholder owns in a company, the higher the cost of purchasing relevant shares from their family/beneficiaries if they were to die. Cover must therefore be set at a level that will cover this cost.

Premium rates also vary not only between policies but also between insurers, so it is important to obtain expert advice.

Spectrum FA can advise and assist you in obtaining the right type of policy, add-ons and cover level to protect your business against the loss of a partner/shareholder – effectively and at the most affordable premiums possible. Contact us today to find out how.

Who Is Responsible for Paying Shareholder Protection Policies’ Premiums?

Shareholder protection insurance premiums are usually paid by the company/business. It is, however, possible for alternative arrangements to be made.

Please contact Spectrum FA for additional information & guidance on this.

Who Should Have Shareholder Protection?

Considering the potential impact a partner/shareholder’s death could have on a business, every company with two or more shareholders/partners – regardless of industry or size and including Private Limited, Public Limited and Limited Liability Partnerships (LTDs, PLCs & LLPs) – should seriously consider shareholder protection.

Should you be securing your business’ future with shareholder protection? Request a free no-obligation assessment of your company’s specific requirements today.

How Can Spectrum FA Help You with Shareholder Protection?

Spectrum FA specialise in business protection insurance and have helped companies of all sizes and across many different industries protect their businesses against the loss of partners/shareholders for many years.

Combining these years of experience with business protection insurance knowledge, in-depth shareholder protection know-how and access to well-known British insurers’ most cost-effective & reliable policies, we understand that the needs of every company are different.

Our services are therefore completely bespoke – meaning we ensure any policy we recommend is tailored specifically to meet your business’ requirements by thoroughly reviewing your circumstances before doing so.

Thereby ensuring you obtain the most comprehensive cover possible at the most affordable premiums, we can then make all necessary arrangements for the policy to be put into place for you.

Are you ready to protect your business’ future? Request your free shareholder protection review now.