What is shareholder protection insurance?
Around 15% of people die before retirement and in today’s uncertain world of business it’s important to make sure you have a safeguarded and secure business plan. The death of a shareholder could put the future stability and harmony of a business in jeopardy.
Ultimately, shareholder protection insurance is there to make the after-effects of a shareholder’s death worry-free. It involves writing up legal arrangements that set out how shares are to be managed if a stakeholder passes away. Specifically taken out by company shareholders, shareholder protection insurance is a form of life insurance policy which is designed to protect both the company and the shareholder’s family or dependants.
The policy includes the amount the shareholder’s shares in a business are worth. To make things as smooth as possible, this normally comes with an agreement that any payout is used to purchase their shares from their dependants.
Does shareholder protection insurance differ from keyman insurance?
Many companies are reliant on a few key people within the business who bring in the money to keep the business going. It isn’t pleasant to think about, but Key Person (or Keyman as it is also known), is a type of insurance policy which will protect your company should a key employee die or become seriously ill. In comparison, shareholder protection insurance can only be taken out by those who own a percentage of a business, such as a shareholder, director or partner.
How does shareholder protection insurance work?
Should a shareholder develop a serious illness, a shareholder protection policy will pay a lump sum to the remaining shareholders or business owners, intended to purchase the individual’s shares in the company.
Why should you take out a shareholder protection insurance policy?
By taking out shareholder protection insurance, shareholders enjoy the satisfaction and comfort that should another shareholder die you won’t suddenly have to magic the deficit from thin air. You will get money that will allow you to purchase the deceased’s shares and it will be business as usual.
By taking out insurance, company shareholders can relax in the knowledge that their families will be looked after in event of their death. Inheriting family members who have potentially lost the main breadwinner would often rather receive cash as this is far more useful to them.
The same can happen with illness or disability. Should a shareholder become ill, knowing that they have shareholder protection insurance will be a huge relief.