Shareholder protection insurance is essentially a form of life insurance that’s used to fund the purchase of shares in the event an existing shareholder dies or becomes critically ill and can no longer continue in the business.
How much shareholder protection you’ll need will depend on your business’ individual circumstances and those of the shareholders.
Factors like how many shares each shareholder has in the company, how much those shares are worth, and how that changes over time.
When working out the cost of your shareholder protection, much of the costs will come down to the individual shareholder.
Because shareholder protection is a form of life insurance, premiums are worked out in a similar way to any life insurance policy and are based largely on the personal and physical circumstances of the shareholder.
When considering taking out shareholder protection insurance, we’d always recommend the sooner the better as the costs can increase later as the personal circumstances of the shareholder's change.
To give you an idea of what to consider when taking out shareholder protection, here’s the five key things insurers will be looking for:
1 - The age of the shareholder
Age plays a key part in the costs of a shareholder protection plan.
The older the shareholder, the greater the considered risk of illness or death.
This means it will cost more to insure an older shareholder who has a similar lifestyle to a younger shareholder.
That’s why we recommend starting early with your shareholder insurance.
2 - What’s the shareholder’s lifestyle?
Like any life insurance, the lifestyle of the insured person will be a big factor in the price.
The main things that insurers will be looking for are things like, is the shareholder a smoker? Or do they regularly drink more than the recommended amount?
Answering yes to these questions almost guarantees a higher premium.
Similarly, a shareholder with a sedentary lifestyle who’s overweight will be deemed at higher risk of death or illness than a shareholder with an active, healthy lifestyle.
If you can show you’re an active person in good health, your shareholder protection insurance will likely cost less.
3 - What industry is the shareholder in?
This one often gets overlooked but the occupation and business the shareholder works in can impact how much it will cost to get shareholder protection insurance.
If the industry is relatively low risk then the premiums will be lower.
If the shareholder works in an environment where the risk of death, injury or illness are greater, the costs of the insurance will go up.
For example, a shareholder at an accountancy firm who spends most of their time behind a desk will likely cost less to insure than a shareholder in a construction company who spends most of their time at a construction site surrounded by heavy moving equipment.
4 - What’s in the shareholder’s medical history?
While the shareholder might be in good health now, previous health scares or indicators might mean they’re deemed at higher risk than others.
Anything like a history of high blood pressure could potentially mean a higher premium for shareholder protection.
Any serious illnesses in their past, even if they’ve fully recovered could also increase the costs of a shareholder protection policy.
And it’s not just the individual shareholder’s history.
Insurers will want a full family medical history too to identify any potential hereditary illness that could make them a higher risk.
5 - What’s the shareholder’s current health status?
Obviously the big thing when it comes to health or life insurance, is the current health of the applicant.
If you want to invest in shareholder protection insurance after a shareholder has been diagnosed with a serious illness, you’ll likely find it very difficult.
Presenting an accurate picture for your shareholder protection
One thing we can’t stress enough is that you must provide accurate details to your insurance provider.
Even the smallest deviation from the information you provide can result in your insurance being voided.
It’s also worth noting that each area we’ve mentioned above isn’t taken in isolation.
Insurers will take a complete picture of the applicant to work out the costs of the insurance premiums.
If you need help ensuring you submit everything correctly and want independent advice on the right type of shareholder protection for your company, get in touch.
At Rigby Financial we’re an independent broker who can guide you through the process of finding and applying for shareholder protection to keep your business’ financial future safe.
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