Shareholder protection insurance, called partnership protection where the owners are partners, is cover that each owner of a business takes on their own life so that, if one owner dies, the others have money to buy that owner's share from their estate. Insurers' adviser literature usually sets it up with a trust and a cross-option agreement, the legal agreement that says who may buy, who may sell and at what price.

Thinking about cover for your own company or partnership? Submitting the quote form here brings a call from an FCA-authorised broker, who can talk through how insurers might see the owners and the cover. It is free.

What is shareholder protection insurance meant to solve?

Legal & General's Share Protection technical guide (W13813, February 2026, written for advisers) explains that without an arrangement, a deceased owner's personal representatives and then beneficiaries usually become entitled to the share. Its stated aim is that "the deceased owner’s dependants have a willing buyer and cash instead of a share of the business."

Aviva's adviser guide to business protection (AL15009, July 2026, for adviser use only) notes that a family could be forced to run a business they know nothing about, or sell to an unsuitable buyer if the other owners cannot raise the money. And "Unlike a company, a partnership will automatically dissolve if any of the business partners die unless an agreement exists to the contrary." Cover that pays the business for losing a person is a different product: what key person insurance is for.

Who owns the policy, and who receives the payout?

Royal London's adviser guide (published 8 September 2025, for financial advisers only) describes three set-ups; Legal & General, Aviva and Scottish Widows describe the first.

Set-upWho takes out the policyWho receives the money
Own life, in trustEach owner, on their own lifeThe trustees, for the other owners
Life of anotherEach owner, on the other owners' livesThe surviving owners directly
Company share purchaseThe company, on the shareholder's lifeThe company, to buy the shares

Own life in trust. Each owner takes a plan on their own life for the value of their share, written in trust for the other owners. The insurer pays the trustees, who pass the money on. The trust must exist from the start: Scottish Widows' adviser page on its Business Trust says it "must be signed and dated on or before the start date of the policy for it to be valid". Trusts are explained in our guide to life insurance trusts. Each owner usually pays the premiums on their own policy; whether a company can pay instead is on whether shareholder protection is tax deductible.

Life of another. Where there are only two or three owners, Royal London's guide says each can insure the others' lives instead. With more, "a four shareholder company could require twelve plans".

Company share purchase. Here the company insures the shareholder and uses the payout to buy back the shares, which the Companies Act 2006 allows only under strict rules. The guide calls this generally unsuitable for new companies: the seller needs to have held the shares for at least five years, otherwise the buy-back "may not be treated as a disposal for capital gains tax but rather a distribution which could result in a higher tax liability".

The policies can be life cover, or life with critical illness cover. The choice depends on the owners' circumstances and what they can afford. Where nobody knows when an owner will retire, Legal & General gives whole of life cover as one option (what whole of life insurance is).

What is a cross-option agreement and how does it work?

A cross-option agreement is the written agreement between the owners that governs how a share is sold and bought; Royal London's guide recommends one with either kind of owner policy. It gives options, not obligations: the personal representatives may sell, the survivors may buy, and neither is bound until one side uses its option. Aviva's guide lists it alongside buy and sell agreements and automatic accrual as possible routes, and expects owners to take their own advice on which suits them.

The two insurers that set out the mechanics differ, so the owners' own signed agreement is what counts.

EventRoyal LondonLegal & General (W13813)
DeathThe personal representatives may sell and the survivors may buy; the agreement usually requires the options to be used within 3 monthsSame two options; owners can buy within three months, personal representatives can sell within six months
Critical illnessThe agreement can let the ill owner sell straight away; the other owners' option is deferred, typically for 12 months, and can only be used if the ill owner has not returned to work in that timeWhere critical illness is selected, the ill owner may sell for six months after the proceeds of a valid claim are received; "There is NOT an option for the other owners to buy"
Once an option is used"the agreement becomes binding on the other party"The other party is bound to buy or sell

Price. Legal & General's agreement is drafted so that a specified value written into it is the price if the death, terminal illness or critical illness payment comes within three years of the agreement. After that, a "fair value" is paid. An independent auditor or professional valuer, appointed by the surviving owners and the personal representatives, sets that figure. The arrangement should be reviewed at least every three years, and if it is not, the price reverts to fair value. Scottish Widows makes the related point that "Fair value is likely to be achieved when a fixed valuation of the business is agreed at outset".

Agreeing a value and matching each owner's cover to it is the heart of the arrangement. A broker reached through the quote form here can explain what insurers ask for and arrange quotes for the sums you choose.

Why do insurers describe options, and what does HMRC say about business relief?

Legal & General gives the reason insurers favour options: "if the share protection agreement includes a binding contract for sale, such as a buy and sell agreement, any applicable Business Property Relief may be lost."

HMRC's Inheritance Tax Manual (pages dated 4 September 2017 and 18 October 2016) says property under a binding contract for sale is not relevant business property, and an owners' agreement is one only if the personal representatives are required to sell and the survivors obliged to buy. "Only most exceptionally does such an agreement constitute a binding contract for sale", and when it does, "it prevents the interest or shares concerned qualifying for business relief". Where the deceased's interest falls into the estate with an option for the survivors to buy it, the manual says the agreement is not a contract for sale and does not prevent relief "by reason of IHTA84/S113", the binding-contract rule. Its example is an option for the survivors; how a particular cross-option agreement is treated, and whether relief is due under the conditions below, is a question for the owners' solicitor or accountant.

GOV.UK's Business Relief guide (read 20 October 2026) gives 100% relief on a business or an interest in a business and on shares in an unlisted company. For deaths on or after 6 April 2026, "100% relief is capped at £2.5 million for qualifying business or agricultural property", and qualifying property above that allowance gets 50%. A spouse's or civil partner's unused allowance can be transferred, which could make it up to £5 million. The deceased must have owned the business or asset for at least 2 years before they died. Among other exclusions, there is no relief if the business mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments, or if it "is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company".

On the policy itself, Aviva says the money from a claim "won’t be part of the policyholder’s estate if it’s placed in an appropriate trust". Premiums paid into a trust would normally count as gifts for inheritance tax. HMRC may accept there is no gift where a reciprocal commercial arrangement requires all the partners or shareholders to enter a share protection agreement. Both insurers tell owners to take their own legal and tax advice first.

How is shareholder or partnership protection set up?

Aviva's guide sums up the three parts: a legal agreement so the sale can go ahead as planned, a policy for each owner to provide the money, and a trust so the money reaches the right people. In outline:

  1. The owners choose the events to cover: death, or death and critical illness.
  2. They agree a value for each share, which sets each owner's sum insured.
  3. They put a cross-option agreement in place. Legal & General and Aviva both provide a specimen agreement and say the owners should have their own legal advisers approve it.
  4. Each owner takes a policy on their own life, with the trust signed at the outset.
  5. The owners review the agreement and the cover as the business changes.

Under Legal & General's guide, if an owner leaves, "the arrangement will normally cease to apply to that owner and the policy will automatically revert to the owner". If they keep their shares, though, the arrangement continues. New owners join by a supplemental agreement, with their own policy and trust. The agreement covers transfers only on death, terminal illness or (if selected) critical illness, not a lifetime sale.

How is it different from key person and other business cover?

With key person cover, the business takes out a policy on someone whose loss would hurt it, and the payout goes to the business. With shareholder protection, each owner insures themselves and the money reaches the other owners through trustees. The contrast is drawn in key person insurance and shareholder protection. Relevant life insurance and executive income protection do other jobs, and the range is in business protection insurance within our business cover guides.

Frequently asked questions

Do all the owners have to take part?

The insurers' documents are written on that basis. Scottish Widows says all the business partners or fellow shareholders should enter into the arrangements, and Legal & General's guide assumes all of the owners take part.

Does shareholder protection pay out on critical illness as well as death?

It can, with a life and critical illness policy. Aviva's version pays on a critical illness "that meets our policy definition" if the person then survives for at least 10 days, so the policy wording decides what counts. The agreement also needs a matching option for a critically ill owner, as the table above shows.

How much does shareholder protection cost?

That turns on each owner's age, health, the sum insured and the term, so no fair figure exists without those details; see what shareholder protection costs. For actual quotes on a company or partnership, the broker who rings after you submit the form here can arrange them.

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