Shareholder Protection Insurance | Spectrum Financial Advice

What is Shareholder Protection Insurance?

Shareholder Protection is a type of life insurance policy that will protect the financial interests of shareholders in a Private Limited Company or Limited Liability Partnership (LLP), should a shareholder die.

Also known as Director Share Protection or Ownership Protection, this type of policy can ensure that, should one shareholder die, the remaining shareholders/business owners are able to purchase the shares of the deceased owner. This will ensure business stability and continuity.

Policies can also include critical illness insurance, allowing any business owner diagnosed with a critical illness to immediately sell their share of the business to the remaining business owners, without the stress of the other owners having to raise the financial capital or use savings.

Spectrum Financial Advice have access to the leading insurance providers in the market and will recommend suitable policies, based on the needs of you and your business.

Contact us today for a fee-free, no obligation review to find out how easy it could be to protect your business and the shareholders.

Please also look at our frequently asked questions (FAQs) towards the end of the page.

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Flexible Cover

Spectrum FA will advise on a range of policy options to ensure you receive cover tailored to the circumstances of your businesses shareholders.

Peace of Mind

Spectrum FA will ensure your Insurance covers all the relevant owners in your company to provide peace of mind to them, their families and your business.

Competitive Premiums

Spectrum FA have access to the leading Insurers and are able to obtain competitive premiums for the level of cover you require.

How Does Share Protection Work?

The insurance pays out a lump sum and is designed to protect companies and shareholders from the risks a death, terminal illness or critical illness (if is option is selected) of one of their shareholders would present to their business.

The policy will pay out a pre-determined amount of money to the company/remaining shareholders in the event of a death or critical illness diagnosis of a shareholder.

Remaining shareholders can then use this lump sum to immediately buy the deceased owner’s shares from his or her next of kin/beneficiaries. This allows remaining owners to retain control of the business.

We will also advise on and arrange for any policy we recommend to be placed in a suitable trust, free of charge, as part of our service.

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The Benefits of Shareholder Protection Insurance

With this type of cover, you will be able to ensure your company and the shareholders, by providing a lump sum payment that will allow the remaining business owners to purchase the deceased shareholder’s stake in the company.

This type of insurance cover can ensure the remaining business owners have the necessary funds to buy back the shares from the deceased owner’s next of kin.

Consequently, the remaining business owners are able to remain in control over the business and the deceased owner’s family will receive a lump-sum payment in exchange for the shares.

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What are the Different Types of Shareholder Protection Plans?

There are 3 main types of Shareholder policy;

  • Option 1. ‘Own life policy’ under business trust
  • Option 2. ‘Life of another’
  • Option 3. Company share purchase

Depending on the circumstances of you, your business and the shareholders, we will recommend the most suitable option to suit your needs.

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We have access to the leading insurance providers in the market, which allows us to recommend the most suitable policies based on your individual circumstances.

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View some of our frequently asked questions that some of our customers have asked.

Why do I need Shareholder Protection?

If your business is owned by more than one owner, then it’s vital you consider this type of insurance to safeguard your company against the death or critical illness of one of the business owners. Without this type of cover the usual course of action is for an individual’s share of a business to pass to their relatives or other beneficiaries on death. When this happens, the beneficiaries have two options; either take over the deceased’s position as an owner, or realise the value of the interest by selling it. Unfortunately, neither option is without its problems.

Often, the shareholder’s family members or other beneficiaries have little or no prior association with your business; they may know little about what you do and nothing of how you work.

Should the beneficiaries wish to sell the interest to release the capital, you, as the remaining owners, may have very little influence over how the shares are sold. Even if your business is consulted, there may be difficulties in finding an appropriate buyer, which could lead to financial problems for both the family and your business, or you could find yourself working with an unwelcome new owner.

Shareholder protection can provide cover should one of the business owners become critically ill or die, the capital is instantly provided in a lump sum payment. This will enable the remaining business owners to purchase the share of the business from the critically ill owner or from their beneficiaries, allowing you to maintain full control and ownership of the business.

Why is Share Protection important?

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

  • Take the deceased shareholder’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 if there is no protection in place. Shareholders’ 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 business owner’s role within a company, their lack of knowledge or lack of commercial experience in general – could result in their involvement with the business’ daily affairs leaving surviving shareholders or surviving business owners facing substantial difficulties and frustrations.

In the long run, this could have a significant detrimental effect on the company’s smooth running and profits. If, on the other hand, the beneficiaries/family decide to sell the shares, the company’s remaining shareholders may have no say with regards to whom they are sold to. Even if the beneficiaries consult them about this, finding a suitable buyer can be difficult. This could leave both the deceased’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.

This type of insurance plan can prevent this from happening. Contact us now to find out how.

Who is eligible for Shareholder Protection Cover?

To be eligible you must be a shareholder of the company. Usually, this means they must be registered shareholders of the company.

How much does Shareholder Protection Insurance cost?

Insurance premiums depend on the following factors:

  • Age of the individual to be insured
  • Smoker status
  • Medical history & current lifestyle
  • Level or amount of cover – this needs to be set at a suitable level based on value of the business and the % of shares in the business
  • Term or length of the policy
  • Which, if any, other add-ons/optional extras are selected

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

Spectrum Financial Advice will 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 shareholder – effectively and at the most affordable premiums possible. Contact us today to find out how.

Who should have Shareholder Protection?

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

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

What are the key features?

The key features of the insurance include:

In the event of the death, critical or terminal illness of a shareholder, funds are available to the remaining business owners. This allows the remaining owners to purchase the shares back from the deceased owner’s next of kin.

The deceased owner’s next of kin will then have the value of the shares in the form of a lump sum payment and the remaining business owners are able to retain 100% control of the business.

There is no income tax to pay on the proceeds from this type of policy.

As the pay-out from the life policy does not form part of the deceased’s estate, there will be no inheritance tax (IHT) as the shares will typically qualify for 100% business property relief.

Tax rules may vary depending on your personal situation. We do not offer tax advice. We recommend you speak with your own legal or tax adviser on your personal tax situation.

How long does cover last?

The term of the Shareholder Protection policy needs to match the needs and circumstances of the business and the shareholders.

Usually, the length of the policy will tie in with the date the shareholder is planning to retire or exit the business.

Again, we will recommend a suitable term based on the needs of you and the business.

Who pays for Shareholder Protection?

Insurance premiums are usually paid by the company/business. It is, however, possible for alternative arrangements to be made. Please contact us for further guidance on this.

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 being diagnosed with a specified illness.

How can Spectrum FA help?

Spectrum FA have years of experience as specialist business protection insurance advisors and have arranged cover for many different types of business. We will recommend suitable policies that will protect the future of your business from being disrupted by the unfortunate events such as death or critical illness.

Being independent and regulated by the Financial Conduct Authority, we have access to the leading insurance providers in the market, at competitive premiums. We provide professional advice and will tailor the cover to match the circumstances of you and your business.

We do not charge you a fee for our advice or service and you will speak directly to an expert who will guide you through the process and handle all the paperwork on your behalf.

To find out more about business insurance including the cross option agreement / double option agreement, please get in touch with us today and arrange a fee-free, no obligation review. You can contact us by completing the contact form on the website, by emailing, and one of our advisors will get back to you as soon as possible or by phoning us on 01279 315 013.

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