Shareholder protection can get any size business through difficult times.
If a shareholder dies or becomes too ill to carry on with the company, shareholder protection can limit any damage it will do to the company.
This type of protection not only covers the business if they’re finding it difficult to continue, but it’s also there to provide some reassurance for the families of the shareholder. If you have a lot of shareholders as part of your business, providing cover means financial protection and a smooth transition of shares. There are many benefits to shareholder protection, but the main reason why people take it out is to provide peace of mind and limit issues within the business.
With a policy in place, you can quickly retain control of the business, so there will be minimal disruption when negotiating the remaining share value.
Shareholder protection also means the shares won’t end up with an unwanted third party like a family member with minimal business experience.
For the shareholder’s family, it means they’ll receive a fair valuation of the shares, so they have one less thing to worry about when losing a loved one.
Interested in shareholder protection? Here’s how it can impact your business.
How is shareholder protection insurance calculated?
Shareholder protection is often calculated after looking at the health and lifestyle of the shareholder.
They will be asked for their age, for any medical issues and about their lifestyle (if they smoke, how often they exercise, etc).
What can impact the cost of the shareholder protection policy?
The main thing that can impact a protection policy is financial changes.
For example, a shareholder could buy a new house and increase their mortgage payments, which will affect the premium payments.
This is the same for any health and lifestyle information given at the start of the policy.
This could include stopping smoking or developing a medical issue.
Because of the way shareholder protection is calculated, it’s important that the insurance company is made aware of any changes to the shareholder.
How is the payout calculated on shareholder protection premiums?
Depending on who you choose to take out your policy with, there are a few different ways in which a payout is calculated.
It can be a pre-agreed amount that is identified at the start of the policy.
This is an agreement between the business, the shareholder, and any beneficiaries.
The benefit of this is that the rate of premiums never changes unless the shareholder decides to make changes.
The other way is if the payout amount is linked to the annual rate of inflation.
In this scenario, the rate of the premiums would change depending on this rate and can’t be changed by the business or shareholder.
However, this does mean that the amount meets the cost of living at the time of the payout rather than when the policy was agreed to.
The option chosen is up to the business, the shareholder and their beneficiaries, and what suits them.
How to choose the right level of shareholder protection
There are a few different protection policies for shareholders you can take out, and it’s all about finding the right one for you.
Own life under business trust is when a shareholder takes out their own policy and puts it in a business trust.
If they die or become critically ill, the value of the policy is paid out to the remaining shareholders.
Life of another protection is when the individual policyholder pays the premiums, but any benefits are paid to the other shareholders rather than family members.
A company-owned plan is when a business owns and pays into a policy.
Any proceeds go into the business in the event of a death or critical illness.
The policy you choose to take out is dependent on the needs of your business, the shareholders, and any beneficiaries.
Get more information about buying shareholder protection insurance from Rigby Financial
Having cover in place for shareholders in the event of a death isn’t the easiest to think about.
But it can help secure your business if something happens and give reassurance to the families of shareholders.
With so many options, it’s important you get the right cover for your business and shareholders.
Get in touch today to learn more about how shareholder protection can benefit you and your business partners.