Our client, who co-founded his business a decade ago, wanted to protect his family’s interests should anything happen to him. He needed to ensure they got fair value for his share of the business, while his business partner could continue to run the business without involvement from the family.
We advised that he take out a cross-option agreement, which sets out what happens within a company should one of the shareholders become critically ill or die. This gives the surviving shareholder(s) an option to buy back the shares of the ill or deceased shareholder, while it also gives next-of-kin the ability to force the surviving shareholder(s) to buy back the shares. It is also possible to raise the money needed to fund such a buy-out by each shareholder taking out insurance on the life of the other, or the company taking out insurance on the lives of the shareholders.
We needed an insurer who would arrange the cross-option agreement, shareholder protection and key person cover with monthly premiums at a manageable level.
• An insurer offering shareholder protection whereby each shareholder takes out their own life plan for the value of their shares and the plan is then written under business trust for their co-shareholders.
• An insurer offering a key person plan which the company purchases on behalf of certain employees, pays the premiums and is the beneficiary of the policy. In the event of the person’s death or critical illness, the money can be used to cover the costs of recruiting, hiring and training a replacement as required.
After sourcing the market, we identified an insurer who offered shareholder life cover and key person cover for manageable premiums.
The application process: To support the application, the client answered a number of questions about his age, lifestyle, health, smoking status, alcohol consumption and family medical history; due to the level of cover the clients also needed a medical. Once this had been submitted to the insurer, we were delighted to inform our client that an insurer had issued full cover for the amount requested.
• Shareholder policy: £6m of cover (per shareholder)
• Key person plan: £250,000 life cover & critical illness cover
• Monthly premiums: £428.00