The untimely death of a business owner or shareholder is a traumatic and tragic event, but it can also have unforeseen financial consequences.
The shareholder’s surviving spouse, partner, or other beneficiaries may inherit their shares and have an immediate need to raise funds. In turn, the surviving shareholders may want to buy the shares but find themselves without the necessary funds.
As a result, the remaining shareholders can find themselves working with a previously unknown third party as shares are sold to the highest bidder, which may be less than the true value of the shares. Or taking on unwanted debt in order to buy the shares themselves. With uncertainty over ownership there are no guarantees that raising the funds at this time would be possible.
Shareholder protection insurance pays out a lump sum when a person it covers is diagnosed with a terminal illness, a specified critical illness (if chosen) or dies during the term of the cover.
It is designed to help the surviving business owners to buy the insured shareholder’s shares and retain control of the business. By having cover in place, should anything happen to a shareholder, the surviving owners have the capability to retain control of the business, rather than have someone who has no experience, is unable or has no interest in being involved in the day to day running of the business. Shareholder protection forms a crucial part of successful continuity planning looking after both the business and the family of the deceased shareholder futures.
Why buy shareholder protection insurance?
- Based on a suitable agreement – putting in place an appropriate shareholders agreement is the first step to buying the right cover.
- Properly designed – shareholder protection cover should be arranged under an appropriate trust.
- Right for you – the correct insurance ensures that continuing shareholders would have funds to help buy the shares and the deceased’s family will receive appropriate financial compensation.