Meta title: How to set up a life policy for shareholder protection
Meta description: Learn how to set up a life policy for shareholder protection in our latest blog or contact us at WIS Business Protection for more advice.
When you run a business, protecting the assets and portfolios of your shareholders is key. This includes having all of the necessary insurance in place to protect the company no matter what happens to its shareholders. Learn more about how to set up a life policy for shareholder protection, what it means for your company going forwards and some of the ways life policies for shareholder protection guard your finances in this blog.
What is shareholder protection?
Shareholder protection insurance provides shareholders in a company with the necessary funds to buy more shares in the event that one of the company’s shareholders passes away. Although this primarily comes in the form of a life policy, you can also get shareholder protection in the form of critical illness cover, in the event that a shareholder gets an illness that they are likely to pass away from.
How does shareholder protection work?
Shareholder protection is calculated based on the amount of capital required by the remaining partners to take over a board member’s share in the event that the individual passes away before getting the opportunity to sell their shares. As existing members of the board receive the share, the structure of the board and the overall direction of the company remains the same.
This is an excellent way of ensuring that a business has continuity even in spite of the difficult circumstances that arise. Around 30% of people in the UK have life insurance, so why wouldn’t you apply the same principles to a business?
How to set up a life policy for shareholder protection
There are several integral steps to know when setting up a life policy for shareholder protection. These are:
1. Contact the insurance provider
The first step in the process includes getting in touch with an insurance provider. At this point, you simply want to get a better idea of the policies available to your shareholders, any restrictions on these policies and optional extras. An example of these extras includes critical illness cover, which ensures that the shareholder is still paid in case of a severe diagnosis and they’re unable to work.
2. Provide thorough details
After establishing the basic facts of the policy, provide as much detail as possible regarding the shareholder in question. This includes information such as their age, smoker status and any existing illnesses they have. These questions go into a significant amount of depth, and honesty is key as some insurance providers will follow up with a doctor.
The specific information you provide at this point in the process establishes important facts about the policy, including price point and eligibility. The probability of passing away increases with age, so all information provided needs to be accurate.
3. Establish a quote
After the insurance company has received all of the necessary information from you, they will provide a quote for the cover you desire. This varies depending on the age of the person the policy refers to, any existing injuries or illnesses they have, and the amount the insurance company is prepared to pay out for a successful claim. Most businesses choose to pay this cover monthly as it’s usually an ongoing agreement. Some insurers will offer you several different quotes, with multiple options in terms of the extent of cover you receive.
4. Pay for the policy
Finally, you’ll sign the agreement and start paying for the policy. This stage of the process sees the shareholders enter an agreement with the insurance company that ensures that the composition of the board stays consistent in the event one of them passes away. From this point onwards, shareholder protection is in place and current members of the board have the necessary resources to buy out their deceased companion’s shares in the organization.
Try WIS Business Protection
WIS Business Protection offers a range of shareholder protection policies for its customers, ensuring they have the ability to purchase their fair share of a business. If you’re still unsure about how to set up a life policy for shareholder protection, get in touch with our team of experts today to find out more about our great services and what we can do for you.