If a business owner dies or is diagnosed with a critical or terminal illness, their share of the business usually passes to their beneficiaries, which means the control of that share does too. The other business owners may want to buy that share but many businesses don't have the money to do this and it can be costly to borrow.
Shareholder protection allows business owners to buy shares back from a co-shareholder who is diagnosed with a critical or terminal illness, or dies. This policy helps surviving owners stay in control and minimises disruption to the business.
Why shareholder protection matters
Dealing with ownership in a company can be difficult in the event of death or illness.
A shareholder arrangement sets out how the shares should be valued and gives the surviving shareholders the right to buy the shares, or the outgoing shareholder the right to sell.
Why recommend AIG
WIth our shareholder protection we offer:
- Share protection for most limited companies
- A choice of life or life and critical illness cover
- The flexibility to adjust cover when the financial needs of the business
change, subject to certain limits and conditions
- The option to write the policy for a specified term or on a five or 10 year renewable basis
Setting up shareholder protection
Each individual shareholder can take out separate cover for themselves (known as an ‘own life’ policy). This insures them for a sum assured equivalent to the value of their company shares. If they choose to, they can write this into trust to benefit their co-shareholders.
You may need your shareholding clients to enter into an explicit agreement that if one of them dies, the remaining shareholders can buy their shares from their personal representatives.
They can also agree that if one of them suffers a critical illness, the affected shareholder can choose to sell their share. If they decide to do this, the remaining shareholders must buy it.
These are called double and single option agreements. We have a dedicated specimen option agreements and a specimen business trust document. We cannot advise on whether putting a plan into a trust would be suitable for the client’s particular circumstances and would recommend that they take professional legal advice on the suitability of these specimen documents.
Any policies you set up must be aligned with the Articles of Association and the shareholders’ agreement. There may also need to be a trust and/or buyback document in place, for them to be effective.
From on-demand consultations with UK based GPs to second medical opinions from Best Doctors®, our Smart Health service is a convenient way to connect your clients to tools that help them manage their health and wellbeing. It’s available 24/7, 365 days a year, anywhere in the world and can also be used by their partners and children up to age 21, all at no additional cost.
Smart Health is a non-contractual benefit that could be changed or withdrawn in the future.
Literature and support materials
Business Protection Adviser Guide
This Business Protection guide helps to support and streamline your advice process.
Reasons why - Business Protection
A handy guide to provide an example of what a ‘reasons why’ letter could look like.
Term Assurance for Business - Cover Details
Read our Cover Details for an explanation of how AIG's Business Protection cover with Term Assurance works.
Critical Illness for Business - Cover Details
Read our Cover Details for an explanation of how AIG's Business Protection - Critical Illness with Term Assurance product, works.
Business Protection - Quick reference guide
This document is a snapshot of our Business Protection offering, containing an overview of the types of cover on offer, how to determine a cover amount, features and benefits and those all-important tax considerations.