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Shareholder Protection Insurance

Shareholder protection cover can be a good idea for a limited company as it provides a lump sum in the event of the death or serious illness diagnosis of a shareholder. This lump sum is for the other shareholders to use to purchase the shares from the deceased or ill shareholder.

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A shareholder protection plan is a safety net that can allow shareholders to stay in control of their business and take control of their colleagues’ stake in the company. This enables the shareholders to prevent their late partner’s shares from being inherited by an unwelcome family member or worse, their next of kin could sell the shares to a competitor.

A shareholder leaving the business through illness or death is a difficult time and having a shareholder protection plan in place can make the transition and sale of shares more efficient. This will limit uncertainty and disruption to business.

Small businesses particularly may also struggle to find the funds at short notice to cover the cost, and shareholder protection can be a vital cover for the business to take out to ensure their livelihood can continue and they maintain control of their company.

Cost of shareholder protection cover

While the shareholder is around and available, it is important to agree on the amount that would be needed to take over their stake in the business and the total capital required to do this, which will affect the cost of the insurance protection.

Similarly as for a standard life insurance policy, the insurance provider will require information about the shareholder’s age, lifestyle, smoking status and whether they have any pre-existing health conditions. The answers to these questions will impact the overall cost of the premium. If you choose to add on critical illness insurance too then the cost will also increase.

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Tax on shareholder protection plans

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The way that shareholder protection plans are taxed depends on whether it is the individual or the company who is paying for the cover. If it is paid for by the individual, then it must come from taxed income. However, if the company is paying then this protection cover is deemed a business expense. This is then a benefit in kind so the recipient will need to pay income tax.

The market is vast and the best provider for one firm may not be right for another. Some insurers have a higher appetite for risk and the premiums they charge can reflect this. For example, one firm might hike up the rates if the insured person enjoys dangerous leisure activities such as mountain climbing, while another may be less concerned about this.

Shareholder protection insurance advisers

Active Mortgages has a wealth of experience of securing the best shareholder protection cover policies for our clients. We offer a bespoke advice service that is tailored to you and your business. There are a lot of options available to you as shareholders and our specialists will find the right insurance provider for you, to suit your needs, however complex.

Booking a consultation with an expert is easy simply…

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12 January 2024
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2 January 2024
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