Shareholder Protection Insurance

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Shareholder Protection Insurance

Shareholder protection ensures your business can continue in the event of a shareholder’s death

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Regardless of the industry you operate in, or the size of your business, you need to ensure you have the right cover in place to protect your assets should the unthinkable happen. After all, your business represents the livelihood of you and your family, your employees and fellow shareholders.

In the unfortunate event of a shareholder’s death, your business can continue, you retain control and have the necessary funds to do so. A business shareholder protection policy is one of the best ways to do this – but what is it, and how does it work?

What is Shareholder Protection?

Shareholder protection definition: Shareholder protection is an insurance policy that protects the remaining partners, shareholders and directors of a business following the death or illness of a business owner. It requires a series of legal documents, outlining how the shares in a business are to be distributed following the death, or prolonged illness of an insured party.

Shareholders can take out individual protection, or a business can take out a single policy insuring the lives of all shareholders within a business. Should a shareholder die, policy pay-outs can be used to purchase the shares of the deceased. This ensures the business is protected, and the surviving family of an insured party are taken care of financially.

Why is Shareholder Protection Insurance Important?

If a shareholder in your business died, or was unable to continue working, could you afford to buy their shares? If not, this could have serious consequences for you, your family, your business and its employees.

With no shareholder protection policies in place, shares are likely to be passed onto a business owners family. If the family of a shareholder have little or no involvement in a business, this can cause friction, especially if the surviving directors cannot afford to buy-back shares from the family. If a surviving family is financially dependent on the business, they may choose to become involved, or be forced to sell their shares to a third party or competitor.

Without some form of agreement in place, surviving shareholders risk losing control of a proportion of their business. In extreme cases, surviving shareholders could lose control of a business entirely.

Without a working knowledge of a business, it’s clients, processes and route to market, the involvement of a surviving family could have a devastating impact on the longevity of a business. If shares were sold to a competitor, the control of a business would be seriously jeopardized. In some cases, this could result in a change of direction for the business, and if mismanaged, a loss in profits.

The Benefits of This Type of Insurance

A stable, consistent business plan
The key to a successful business is consistently being able to operate at the levels customers have come to expect. The death of an owner or director is likely to have a negative impact on the overall operations, structure and unity of a company. By taking out shareholder protection insurance, owners and directors can rest assured a pay-out will protect their assets and the family of the deceased. This allows surviving directors to focus on returning a business to normal as quickly and painlessly as possible.

Support for Family Members
Most inheriting family members would have little idea how to manage assets in a business they had little or no understanding of. In most cases, surviving families, especially those financially reliant on income generated via the business would prefer a financial settlement. Business shareholder protection insures this is possible, as it pays out a lump sum equal to the value of an individual’s shares. Surviving owners and directors can use this money to buy back shares from the surviving family.

Illness & Disability
As well as protecting shareholders and family members in cases of death, policies can also be put in place to protect business assets should an insured party fall ill. Being diagnosed with a terminal illness or disability can be extremely stressful, but having a policy in place can help to lessen the impact caused. If the worst happens, you want to know your business can continue to operate, and your family will be taken care of financially.

“”

As the director of a start-up marketing agency, I’m too busy to spend a lot of time researching all of the insurance policies we need, let alone finding time to search for the best cover. When I spoke with Gareth, he was incredibly helpful. He explained to me exactly what I need and then found the best policies for the business, its directors and employees. Now I know that the business and its assets are protected, whatever happens. I would highly recommend Gareth, Darren and the rest of his team.

Tom Mitchener “”