Do you know what life insurance for partners and shareholders is? In this post we explain what this type of policy is, which is not very well known, but which is nevertheless very useful when it comes to guaranteeing the continuity of a company in difficult situations such as the death of one of its main members.
The Spanish economy is largely sustained by small and medium-sized enterprises (SMEs). Many of these are even micro-enterprises (with less than ten employees) that are formed by several partners, two or more people who have started the business and are the only “shareholders”. There is also a very significant volume between 10-49 employees and between 50-249.
In this type of company, the death of one of the partners can generate a major setback, not only emotionally, but also in the operation and future of the business.
In addition to the loss of human capital (experience, work, knowledge…), there is the possibility that the heirs of these shares do not have the necessary knowledge, the same philosophy or are not willing to take over the business.
A situation like this is very common and with the aim of offering a favorable solution for all parties, life insurance for partners was created, which is very widespread in the United States and is becoming more and more important in Europe and in our country.
What is life insurance for members?
Members’ life insurance is a policy that is established for the value of the shares of each member, who will obtain the shares of the deceased in exchange for the heirs receiving the insurance indemnity.
Because, what happens when one of the partners dies? In the case of limited liability companies or corporations, the bylaws must be followed, which may provide for the remaining shareholders to acquire the shares of the deceased on a preferential basis. In any case, unless otherwise specified, it is the heirs who receive the shares corresponding to the deceased.
What does this mean? That the situation can be complicated by the entry of new partners. This does not always happen, since it is possible that the legal heirs are ready and willing to take on the challenge of their participation. But if the opposite happens, the continuity of the company is put at risk.
Shareholder insurance to keep the company afloat
In order to try to minimize the effects on the company of the death of a partner, a life insurance for partners can be contracted, which is extended to all the shareholders. In order to contract it, it is important that all the shareholders agree and that a prior agreement is reached. If they are convinced that this is the best life insurance solution, the following is established
a policy that will allow the partners to purchase the deceased’s share of the company from the heirs, who receive an insurance indemnity.
In this way, the partners can lose the fear of having to pay a large sum in the event of an unforeseen death, and the heirs who are not interested in participating in the company can obtain a fair remuneration for the shares that belonged to them.
Like any other life insurance, the shareholders will pay an amount of money periodically, the premium. In the event of the death of one of them, the beneficiaries of the indemnity should be the heirs of those shares (children, spouse or whoever corresponds). This indemnity will mean that the rest of the owners will assume control of the shares, avoiding all the complications that the entry of new partners into a business can entail. On the other hand, the heirs will also benefit, as they will receive the money that would correspond to their shares.
If you own a small business together with other partners, it is important that you are aware of this option and that you receive professional advice in case the rest of the shareholders are also interested. From PIB Group Iberiawe can help you with this type of questions and offer you the different options of policies that exist in life insurance for partners. Contact us without obligation and know all our solutions for companies.
