It is a type of business protection insurance that ensures shareholders have sufficient funds to buy shares from each other if a shareholder dies or is unable to work due to a serious illness or accident. Most policies are based on life insurance, although critical illness cover may also be included

It is a type of business protection insurance that ensures shareholders have sufficient funds to buy shares from each other if a shareholder dies or is unable to work due to a serious illness or accident. Most policies are based on life insurance, although critical illness cover may also be included

Shareholder protection policies pay out a lump sum when the insured person dies, is diagnosed with a terminal illness and given 12 months to live, or contracts a critical illness or injury covered by the policy and is forced to leave work.

Businesses that purchase a shareholder protection insurance policy in the UK typically need to agree to the following rules and regulations:

• Provide honest and accurate information about the insured person's lifestyle and health details
• Inform the policy provider if any of these details change
• When an individual pays the premiums, they must come from taxed income
• If the company pays the premiums, it can be declared as a business expense, but the insured person will have to pay income tax as the recipient of a benefit in kind
• Some policies must be set up with a cross option (or double option) agreement, which allows the remaining partners to purchase the shares and outlines the amount the insured person's beneficiaries will receive in the event of their death
• Where multiple shareholders are involved, all benefits and costs must be shared equally across all parties. This can be done via premium equalisation.
• In addition to these general rules, some shareholder protection insurance providers may have their own terms, conditions, and clauses that businesses will need to agree to, so be sure to check the policy's small print and inquire about bespoke advice if needed.

Here are some of the primary reasons why you should consider purchasing a policy:

• If a shareholder dies without a policy, their stake in the business could be inherited by an unwelcome beneficiary or sold to a rival
• Businesses do not need to accumulate capital or use their savings to purchase an outgoing shareholder's stake in the firm
• Having a policy in place can help ensure a smooth transition when shares are changing hands, minimising business disruption
• The insured person's beneficiaries will know the amount they will receive for the company shares when they are bought out by the other shareholders
• For small businesses, shareholder protection can be critical since many smaller firms may find it difficult to raise buy-out capital at short notice.
• The above information serves as a summary of the benefits of shareholder protection insurance. To learn about the advantages specific to your business, make an inquiry.