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Shareholder Protection Insurance Guide 2023

shareholder protection insurance

Have you considered the consequences for your company if a substantial shareholder was to suffer a severe injury, illness, or death?

Would the other shareholders be able to purchase the shareholding? If not, what would be the consequences?

In this detailed guide, we will explain how shareholder protection insurance works and why it can provide certainty for your business. Read on to learn more.

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What Is Shareholder Protection Insurance?

Shareholder protection provides shareholders in a business with the funds to purchase one another’s shareholding should they be unable to work again due to death, injury, or illness. It is a life insurance-based protection that is flexible enough to include other elements such as terminal illness and critical illness cover.

How Does Shareholder Insurance Work?

Shareholder protection pays out a financial amount if the covered shareholder should die or is diagnosed with a critical or terminal illness. The lump-sum enables the other shareholders to buy the shares of the shareholder. Calculations are based on different factors to decide upon the level of premium required. An insurer will look at the policyholder’s age if they have underlying medical problems and if they lead a higher-risk lifestyle.

Does Our Business Need Shareholder Protection?

To decide whether your business needs shareholder protection in place consider the following two points:

  • Will remaining business owners be able to retain control of the business should the shareholder who is a key person die?
  • Does your business have a shareholder agreement about what would happen if a business holder became critically ill or even died?

What Are the Advantages of Shareholder Protection?

When a shareholder dies with no decision about their shareholding, the company shares typically pass to the beneficiaries of their estate who have decisions to make.

  1. It includes either taking the proceeds from, selling the shares in the company
  2. Taking over the shareholder’s position within the company

With shareholder protection insurance, the family or a family member is not forced into a decision because they will receive a lump sum payout for their shareholding, which distributes amongst the other shareholders.

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With the cover in place, it avoids the following potential problems:

  • The remaining shareholders will acquire a sleeping shareholder who is not adding any value to the business.
  • Surviving shareholders may lose control of the company.
  • The family is unhappy as they have no control over the profits of the business that they require for income.

How Do I Set Up Protection?

To set up shareholder insurance, businesses must have the correct valuation, which will need to be undertaken by an adviser that specialises in this cover. Valuing companies can be complicated as every firm is different, and the sector worked in also has an impact. Considerations to correctly value the business include profit and cash flow analysis.

Insurance Hero has extensive experience in providing share purchase protection and our professional team will be able to help you get a quote that tailors to the needs of your business. Contact us today on 0203 129 8866.

What Is the Cost of Cover?

The cost of shareholder protection insurance can vary as many elements make up insurance quotes affecting premium levels and the sum assured.

Considerations for insuring a shareholder include:

  • Do they have a high-risk lifestyle such as participating in extreme sports?
  • Do they have any underlying medical conditions?
  • How old is the shareholder?
  • Are they a smoker or non-smoker?
  • What is the length of the policy required?
  • What is the level of cover required?
  • Are critical illness and terminal illness a requirement?

Let us consider the following examples to provide an idea of cost:

For a 10-year shareholder protection policy, to insure a 34-year old non-smoker with no underlying medical problems will cost around £7 a month. For a 53-year old with the same lifestyle criteria, the cost rises to approximately £26 a month.

If critical illness cover adds on to the life policy, the cost rises to £32 a month for the 34-year old and £155 a month for a 53-year old shareholder.

How Is Our Business Valued for Shareholder Insurance?

It is not straightforward to value a business for shareholder protection as different considerations come into play and will need to be looked at by a specialist insurance advisor and potentially a tax expert depending on the complexity of the company requirements.

At the minimum, the following need looking at:

  • A full cashflow analysis of the business
  • Calculating all cash deposits and assets as a multiple of net profit
  • A detailed analysis of the business’ profits and how they are changing over time

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For further details on shareholder protection insurance and getting protection for your business, contact Insurance Hero today where our experienced team of professionals can provide you with an accurate quote that closely aligns with your company’s needs.

Shareholder Protection Insurance Tax Treatment

Shareholder protection insurance is a complex type of cover. Not only does a valuation require the services of a specialist adviser, but there are crucial tax considerations that need looking at before a shareholder protection insurance policy is put in place. Three different methods exist for purchasing shareholder protection, and all three options have their specific tax position in the eyes of HMRC.

The three options are:

  1. A company share purchase
  2. Life of another purchase
  3. Own life under business trust purchase

It is vital to get professional advice ahead of putting in place the correct type of policy for your business including the impact for Inheritance Tax purposes.

Further Tax Related Considerations

What about Premium equalisation?

Equalising premiums is a method used to make sure that shareholder protection policies are correctly set up commercially ensuring that the cost of cover is equally divided between all the shareholders in the business.

In the majority of cases, the premium paid by each shareholder will correlate with the level of protection needed to cover their percentage of shareholding in the business.

For HMRC, premiums may need equalisation in some instances to stop unequal premiums from being viewed as a transfer of wealth by shareholders paying the highest premiums to minority shareholders paying the lowest premiums.

Cross option agreement

Also called a double option agreement, it is a legal arrangement between the insured shareholder’s estate and the surviving shareholders and sets out a schedule of who will purchase the shares and at what price point.

The arrangement provides certainty as it sets out what percentage all the individual shareholders will get allocated and for the estate, how much they will receive.

What are benefits in kind?

Benefits in kind are remunerations made by a business to a shareholder or employee above their salary. It can include fringe perks such as a company car, private medical insurance, or even food vouchers to spend in a local store.

Shareholder business protection is complicated insurance and how you set it up dictates if HMRC class it as a benefit in kind which affects taxation. It is vital to get the right guidance from a specialist before any policy is put in place.

Other Types of Insurance Protection for Your Business

Keyman Insurance

Keyman insurance is cover that pays out a financial lump sum to a company should a key member of staff die. If critical illness cover is also part of a policy, protection is also provided, should the insured be unable to work again through illness or injury and not just death.

The payout from keyman cover can be used for several purposes which can include creating a buffer against any fall in profits following the loss of the staff member or the cost to recruit and train a replacement employee.

Business Loan Protection Insurance

If a business owner passes away or is unable to work, corporate debt that ties to a business’ founder or shareholders may be recalled by the lender if the loan is linked to personal finances. To protect against this, business loan insurance can match against the outstanding debt with a cash payout to repay the debt paid out should the insured die.

Many corporate lenders will insist that a business takes out loan protection insurance before any funding is in place.

Relevant Life Insurance

Relevant life insurance is financial protection beyond a salary that a company will offer to its employees to provide a financial cushion for their loved ones should they pass away in service.

The cover is written into trust and pays out a lump sum to the dependents of the employee and can be used to pay off outstanding debts or enable the family to continue maintaining a lifestyle and live comfortably day to day.

For an employer. Providing a product like relevant life cover to their employees demonstrates a level of care beyond merely providing a salary.

Business Partnership Protection Insurance

If you are in a professional partnership with fellow partners, if one of the partners was to pass away or be unable to return to work issues, including retaining control and keeping the partnership going may become a problem.

Business partnership protection insurance is a protection product that is tailored to a partnership style of business and provides the remaining partners with financial money payout sufficient to maintain a controlling interest and buy out the absent partner’s interest in the partnership.


Shareholder protection can provide increased certainty for your business should something happen to one of your fellow shareholders. Importantly, it provides the financial means for the other shareholders to retain control of the company.

If you want peace of mind that your business will not fail due to the death or illness of a fellow shareholder, consider shareholder protection insurance.

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