50% of business owners have left no special arrangements regarding their share of their company if they were to die.
If a business shareholder dies, is diagnosed with a terminal illness and life expectancy is less than 12 months, or a critical illness, if that option is chosen, Share Protection can provide a sum of money to the remaining business owners which they can use to help buy the deceased or critically ill business owner’s interest in the business.
The most common way to write the policy is for each business owner to take out either a Life Insurance or Life Insurance and Critical Illness policy written in trust for the other business owners. They also enter into an agreement, typically a cross option agreement.
If one of the business owners dies, is diagnosed with a terminal illness (and life expectancy is less than 12 months) or suffers from a specified critical illness, if chosen, the other business owners will receive a sum of money that can help buy that business owner’s share of the business.
The premiums are usually paid by the business (sometimes by the individuals). As the premiums are paid by the business they are treated as taxable remuneration for each shareholder and therefore these benefits should be reported to the HMRC on their P11d.
Since premiums reflect the age and sums assured of each individual business owner, the amounts paid do not reflect the benefits each may receive in the event of a claim. However, premiums can be apportioned according to each business owner’s share in the business. This is known as premium equalisation. The sum assured of each policy equals the value of each business owner’s share in the business.