Shareholder Protection - Red Sky Insurance

Shareholder Protection

Shareholder Protection

Shareholder protection allows business owners to buy shares from a co-shareholder who is diagnosed with a critical or terminal illness, or dies. This policy will ensure surviving owners stay in control and minimise disruption to the business.

Each individual shareholder can take out separate cover for themselves (known as an ‘own life policy’). this ensures them for a sum assured equivalent to the value of their company shares. If, however, they choose to, they can write this into a trust to benefit their co-shareholders. You may need your shareholding clients to enter into an explicit agreement that if one of them dies, the remaining shareholders are able to buy their shares from their personal representatives.

They can also agree that if one of them suffers a critical illness, the affected shareholders can choose to sell their share. If they decide to do this, the remaining shareholders must buy it.

Overall, shareholders protection is very beneficial as dealing with ownership in a company can be difficult in the event of death and illness. A shareholder arrangement sets out how the shares should be valued and gives the surviving shareholders the right to buy their shares or the right to sell. This agreement either open or closed will ensure that the business can progress.  

Things To Consider

  • Protect the business interests of each shareholder and their families
  • Would your remaining shareholders have the financial capability to purchase that owners’ share of the business
  • Do you as a business want the owners’ share and control passing to the shareholder’s family on death?

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    You may want to consider life insurance if you have a mortgage and you want to leave a debt free estate, or if there are people who rely on you financially, like your partner or children. Life insurance can also help cover the cost of funerals, or even if you want to leave your children something when you pass away.
    Life insurance can be set up to cover a specific length of time or even for the whole of your life. Various factors will determine the cost, such as age, health and level of cover. You can control who the money will be paid to and for how long you want the policy to be in place.
    Under current tax rules, pay-outs for critical illness, terminal illness and death claims are usually free of personal liability to pay income tax and capital gains tax. However, in some circumstances your pay-out may be subject to inheritance tax. You can normally help avoid this by putting your plan in trust. Bear in mind that the law relating to tax may change in the future. (For tax planning, we act as introducers only)
    When you choose to take out a life insurance policy with one of our providers, they pay us a commission. Our service is always fee-free.
    This depends on your individual circumstances as the amount of cover required is often different for each family. If you are married, have a large mortgage and four children then you are likely to need more cover than a single parent living in a rented flat with one child.
    Yes, you can have more than one life insurance policy.
    Many couples take out joint life insurance policies, due to the convenience and in order to save money, as it is cheaper than taking out policies on an individual basis. However, joint life insurance usually only pays out once, on the first death, leaving the surviving partner without cover.

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