Shareholder Protection Insurance Cover


What is Shareholder Protection Insurance?

Shareholder protection is insurance that is specifically designed to ensure that should one the shareholding directors die or be diagnosed with a terminal illness the remaining shareholders will have access to sufficient capital to buy the deceased’s shares from his/her estate. Each shareholding director takes out a life insurance policy written into trust for the other directors. Typically, there will be a legal agreement put in place, such as a cross option agreement, giving clarity on the process an options in this event

What is the danger in not having this insurance in place?

If a shareholding director were to pass away, his shares will form part of his estate and be passed on to his beneficiaries. This is typically not problem free. The beneficiaries may not want the shares or involvement in the company and might prefer to receive the cash value equivalent instead. At a time when a director has just passed away it could be difficult for the surviving shareholders to rise this capital at this time, either within the company or via bank lending. Individual directors may prefer to understand that, in the event of their death, their family would not have to be concerned with suddenly finding themselves the owners of shares in a company they may have little interest in, or the necessary skills to contribute to.

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