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Work out how to the spread cost easily between shareholders or partners

Customer friendly video explaining why Share & Partnership Protection is important

Share Protection and Partnership Protection

An example of how Share Protection could safeguard a growing business

Losing an owner can have a huge impact on the day-to-day running of a business, and can quickly result in financial difficulties. Boardroom confusion can lead to conflict in decision making, as the surviving owners and the deceased’s family may have very different ideas about the future of the business

The example below shows how Share Protection cover can be used to help clients who want to secure the a growing business if something happened to one of their partners. Please note that this is an example only and is not based on a real company.

Clive

Clive

Simpson & Partners

The business is worth £1,500,000 and each partner has an equal share. In the event of one of them dying before retirement, the business owners want the option to be able to buy the deceased partners shareholding.

John and Charlotte

John and Charlotte

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Scenario 1

The partners take out Partnership Protection £500,000 life insurance on an own life basis.

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  1. Clive dies unexpectedly.
  2. The £500,000 benefit is paid to the surviving partners. The money (and cross option agreement) means the partners can buy out the share of their late colleague.
  3. Clive’s family receive pre-agreed fair value for their loved one’s share of the partnership.
  4. The business carries on trading.
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Scenario 2

The company doesn't take out Partnership Protection.

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  1. Clive dies unexpectedly.
  2. The remaining partners don’t have the funds available to buy the deceased’s share.
  3. Clive’s family are unable to efficiently realise the value of their loved one’s share of the partnership.
  4. The future of the partnership is thrown into doubt as ownership is diluted and decision making becomes difficult.

Background

  1. Traditional partnership with three partners.
  2. Equal share of £500,000 each.
  3. Insufficient capital to cover each partners' share at short notice.

Simpson & Partners is a legal firm with three partner solicitors and more than twenty staff, and has grown considerably over recent years. All three partners have an equal share in the business and considerable influence in the company’s day-to-day running and success. Each partner has a share of the business valued at £1,500,000.

The partners are all currently fit and healthy, in their mid-40s, and don’t expect to retire for another twenty years. As solicitors, they understand why Business Protection is important – they also realise if one partner where to suddenly die, there would be no available capital to buy the deceased’s share, exposing the business to considerable risk.

Share Protection solution

After meeting their Financial Adviser, Simpson & Partners take out Partnership Protection in the form of three separate life insurance policies, on an own life basis written in trust for the other partners. Each policy would pay out £100,000 to the remaining business owners if one of them died before retirement. And a cross option agreement is also signed giving the remaining partners the option to buy the deceased’s share of the business while allowing the family to efficiently sell it.

Five years later, one of the partners dies unexpectedly and the surviving business owners make a claim, providing them with the capital needed to buy the deceased partner’s share. The cross option agreement ensures this process happens as smoothly as possible.

Without Partnership Protection, the surviving partners would not have had the money needed to buy the deceased’s shareholding meaning the deceased partner’s family could have sold it on the open market, undervalued and to a competitor (or other unsuitable buyer).

Business valuation calculator

Business Valuation calculator

Shows the potential value of a business (based on average net profits, net assets and a profit multiplier).

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Premium Equaliser calculator

Premium Equalisation calculator

Works out how to fairly split the total cost of cover between the shareholders or partners, relative to the benefits they stand to gain.

Try our Premium Equalisation calculator

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