Shareholder insurance


Help avoid disruption to your business if a
colleague were to die.

If a shareholder in your private limited company, member of your Limited Liability Partnership (LLP) or partner in your partnership were to die, could you afford to purchase their share of the business?

If not, there could be significant implications for the future of your business. Shareholder protection can help you protect the ownership of your business in this situation.

What is share protection?

A share protection arrangement enables the surviving owners to purchase the deceased owner's share of the business from the deceased owner's estate and ensures that the deceased owner's dependants have a willing buyer and cash instead of a share of the business.

How does share protection work?

In the event of a business owner dying or being diagnosed with a terminal illness (life expectancy less than 12 months) or a specified critical illness*, share protection can provide a lump sum to the remaining business owners.

This means that if a valid claim is made during the length of the policy, the lump sum could be used to help purchase the deceased partner, shareholding director, or member’s interest in the business.

*If Critical Illness Cover is chosen at outset for an extra cost.

What is a cross-option agreement?

Also known as double option agreement consists of option agreement between the business owners backed up by a policy under trust. The surviving business owners have the option that requires the deceased’s estate to sell and the estate has the corresponding option to require the surviving business owners to buy within a specified period for example this would be two months from the date of death. If either party exercised the option, the other party must comply.          

The surviving business owners will buy the deceased business owners share in the proportion to which they are already entitled to the balance of the business. 

While double option agreements are generally used for life cover, they are less appropriate for terminal illness or critical illness, where a single option may be more appropriate.

For example: there are four business owners, each has a 25% share of the business.

On the first death the surviving business owners would each buy one third of the deceased’s share. This means that the same ratio would be maintained between the surviving business owners.

Because the parties only have the option to buy, the agreement is not a binding contract for sale and so it should still be possible for representatives of the deceased to claim business property relief for IHT calculations.

The agreement will require that each business owner must take out and maintain a life policy to provide a lump sum to buy their share. The policy will be written under a special share protection trust with the other business owners also being trustees.

This offers peace of mind to the family left behind, as they know they will have a willing buyer of shares they may no longer want, and remaining shareholders can relax in the knowledge that they will have the option to purchase.

Share protection is taken out at the point of setting up a cross-option agreement, and can be reviewed regularly as the business value changes over time. We provide a specimen copy of the cross-option agreement as part of our Share Protection service.

Customer Contact

To discuss our Business Protection Plans, call us on 0800 197 9208.

Lines open 9am to 5pm Monday to Friday.

We may record and monitor calls.

Alternatively, email us on

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Why consider share protection

If a business owner dies with no share protection in place, their share in the business may be passed onto their family. This means that the surviving business owners could lose control of a proportion of the business, or in some circumstances, all of it. The family may choose to become involved in the ongoing running of the business or could even sell their share to a competitor.

Why consider Shareholder Protection Insurance

The benefits of Shareholder Protection Insurance

Losing a valuable shareholder, whether through illness or death, can have a destabilising effect on a company. Here are some advantages of taking out Share Protection to safeguard your business.

  • You can stay in control of the business by preventing the shareholding from being inherited by an unwanted beneficiary, whose priorities may not align with yours.
  • You can reduce disruption at a challenging time for your business by making an eventual transfer of shares as orderly as possible.
  • You have the flexibility of coming to different agreements on how to manage the shares; for example, owners could buy shares back from a shareholder who’s diagnosed with a critical or terminal illness.
  • You can avoid costly buy-out capital and you won’t have to dip into your savings.
  • You can ensure there is greater transparency for the insured person’s beneficiaries as they’ll have a clearer picture of what they will receive for selling the shares to other shareholders.

Tax Situation

Because each policy is qualifying or has no surrender value, there will be no income tax liability on the proceeds in the event of a death claim. Neither will there be CGT, because the proceeds are payable to the original beneficial owners the other business partners.

However, in the event of a valid critical illness or terminal illness cover claim, if you sell your shares the capital gains liability will be the difference between the amount you bought them for and he amount you sell them for. If you receive more from your shares than you paid for them you would have made a capital gain and may need to pay Capital Gains tax.

If all the business owners take part in the share protection there will be no Inheritance Tax (IHT) at the outset or when further premiums are paid. This is because it can be claimed that the arrangement is a bona fide business transaction for full consideration with no gratuitous intent (Inheritance Act 1984) (IHT 1984 S 10) full consideration being the fact that all the business owners are taking part. There will be no surrender IHT on the policy on death, since no transfer of value has happened. There will be no IHT on the share protection on death, because 100% business property relief applies. 

BP - Shareholder protection - Tax situation

Other share protection arrangements

The buy and sell agreement

The owners enter into an agreement whereby on retirement or death, the retiring owner or their estate sell their share to the remaining owners who, in turn, must buy. The owners will purchase the share of the business in the proportion in which the remaining ownership is held. There may be disadvantages in using the buy and sell method such as the loss of Business Property Relief, so if an owner dies, their share of the business may be liable to Inheritance Tax.

Company buyback

The shareholding directors enter into an agreement whereby the company buys the shares on the retirement or death of the shareholder. The company then cancels the shares. The authorised share capital is reduced accordingly by the nominal value of the shares cancelled. There are a number of legal requirements for the buyback to take place and this can be a lengthy and relatively complicated process.

The automatic accrual method

Is used mainly by partnerships in the event of death, the partner’s or member’s share is automatically acquired by the surviving members or partners in accordance with an agreement between them. A life policy may be used as part of such an agreement in order to compensate the deceased’s family.

How much Shareholder Protection Insurance do you need?

How much cover

One way of working out how much shareholder protection insurance you require is to estimate how much capital the remaining shareholder partners would need to generate in order to buy their colleague’s shareholding in the business. 

You may also wish to add to your shareholder protection cover policy and add Critical Illness Cover, which can pay out if the insured person is diagnosed with a specified critical illness during the length of the policy. This must be added at outset for an extra cost.

What affects the cost of Shareholder Protection Insurance?

As with other types of insurance, the cost of cover will depend on a number of factors relevant to the insured person, including:

  • Their age
  • Lifestyle and occupation
  • Health status (and health history)
  • Smoking status
  • Alcohol consumption
  • Family medical history.
What affects the cost of Shareholder protection insurance

What happens to Shareholder Protection if an owner leaves?

What happens to Shareholder protection if someone leaves the company

In situations where the owner of a company is no longer part of the business, the shareholder protection agreement will usually no longer apply to that person. The policy will automatically revert to the settlor/life assured.

Speak to a qualified financial adviser

Our team of expert financial advisers are on-hand to offer professional advice and answer any questions you have about Share Protection. You can call us on 0800 197 9208 from 9am to 5pm Monday to Friday (note - we may record and monitor calls).

You can also email us at to arrange a call back or book an appointment to speak to us.

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