The Benefits of Shareholder Protection Insurance


When running a business, taking risks is par for the course. However, there are some risks that you can protect against. 

If you are a shareholder, you may be wondering what would happen to those shares if you or a fellow shareholder were to fall critically ill or die. You may also be thinking about your family and how they would be supported in your absence.

The sudden loss of a shareholder can not only turn a family’s life upside down, but it can also throw a business into chaos overnight.

Thankfully, you can plan for the worst before it happens…

What is shareholder protection?

Shareholder protection is an insurance policy designed to protect a business should a shareholder fall critically ill or die. The insurance payout would provide the funds required to enable the business to buy back shares from the deceased estate. If the policy includes critical illness cover, it provides funds to purchase the shares from the shareholder if they became ill and chose to leave the business, minimising disruption.

Is shareholder protection insurance worth it?

If a shareholder falls critically ill or dies, this could cause significant interruption to the business, financial concerns and potentially disputes for the remaining shareholders. If a shareholder passes away without suitable provisions, what happens next could potentially cause problems.

For example:

1. The beneficiaries might choose to retain ownership of the shares. However, they might not have the knowledge or experience to contribute to the growth of the company or fulfil the role of a shareholder. 

2. They might want to sell their shares, but your business might not have the funds to buy them back.

3. They might choose to sell the shares to someone you do not know or a competitor.

These possible outcomes demonstrate how you could potentially lose control of your business without sufficient cover in place. Many UK businesses that do not have protection provision in place cease trading within 12 months after losing a shareholder. 

What are the benefits of shareholder protection insurance?

Shareholder protection seeks to benefit all parties. The business, its shareholders, and their families. For example:

  • The insurance payout provides the funds required to buy back the shares and helps to ensure the business continues to run smoothly.
  • The policy ensures that the beneficiaries receive a fair sum for the shares.
  • By having a plan in place, the policy removes uncertainty and can help avoid unnecessary stress and concerns, both for the family of the affected shareholder and the remaining shareholders.

When the risk of not having insurance could mean the potential collapse of your business, the benefits of having shareholder protection cannot be overestimated.

How to ensure your business is protected

A financial adviser can work with you and support getting the right cover for your business.

When putting a policy in place, there are many factors to consider ensuring the policy is set up correctly and provides adequate cover, including:

  • An accurate valuation of your business
  • The age, health and lifestyle of shareholders
  • The length of the policy
  • Ownership of the policy
  • Terms and conditions of the policy

At Grayson Lewis Financial Planning we have the knowledge and experience to support business owners in obtaining the right level of cover and matching them with the most suitable provider for their needs. And, as your business grows, we will be on hand to ensure that your policy continues to provide sufficient cover.

We offer a range of specialist insurance policies designed for business owners including key person cover, shareholder protection, relevant life cover and business loan protection. To find out more, please email or call us on 01572 335 050. We look forward to working with you. 

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