Who Pays the Premiums on Shareholder Protection Insurance?
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How Are Shareholder Protection Insurance Premiums Typically Paid?
Premiums on shareholder protection insurance are paid by the company. Each policy is written into trust for the benefit of the other shareholders, so if a shareholder dies the payout goes to the people who need it to buy their shares, not to the company itself.
Key facts
- The company owns the policies and pays the premiums, with each policy written into trust for the other shareholders.
- Company-paid premiums usually qualify for corporation tax relief, and are treated as a benefit in kind for each insured shareholder.
- Premium equalisation bases each shareholder's benefit in kind on what they would gain if another shareholder died, not on the cost of the policy on their own life.
- Premiums can vary significantly between shareholders due to age, health, shareholding size, or sum assured.
- Getting the ownership and payment structure right at the outset avoids complications later.
Why Does the Company Pay Shareholder Protection Insurance Premiums?
Shareholder protection insurance is funded by the company, which owns each policy and pays the premiums directly. It is the simplest and most tax-efficient way to pay, because no shareholder has to draw extra, already-taxed income to fund the cover.
Because the cover benefits shareholders personally, company-paid premiums are usually treated as a benefit in kind, normally based on each shareholder's equalised premium rather than the raw cost of their own policy (see premium equalisation in shareholder protection). The company usually receives corporation tax relief on the premiums it pays.
The Premium Equalisation Problem in Shareholder Protection Insurance
Shareholders rarely hold identical shareholdings, and rarely share the exact same age and health profile. Each policy is priced on the insured shareholder's own age, health and sum assured, but it pays out to the other shareholders. Left unaddressed, each shareholder would be taxed on the cost of cover that benefits someone else.
Why Premiums Can Differ Between Shareholders
A shareholder with a larger shareholding generally needs a higher sum assured, since their shares are worth more. Older shareholders, or those with health conditions, typically face higher premiums for the same cover than younger or healthier co-shareholders. Without adjustment, a shareholder who happens to be older or less healthy would be taxed on a policy whose payout goes to everyone else.
How Premium Equalisation Works
Premium equalisation matches each shareholder's benefit in kind to what they would actually gain. If a shareholder dies, the survivors buy their shares in proportion to what they already own, so each survivor's equalised premium is their share of the premium on every policy that would pay out to them. The company still pays every premium and the total doesn't change; only the figure each shareholder is taxed on moves.
A shareholder with a bigger stake is usually taxed on more after equalisation, because they would buy the largest slice of the others' shares. Without equalisation, HMRC can treat the gap between what each shareholder is taxed on and what they would gain as a transfer of value between them.
Illustrative Example of Premium Equalisation
| Shareholder | Shareholding | Monthly premium on own life | Equalised monthly premium (BIK basis) |
|---|---|---|---|
| John | 30% | £200 | £91.67 |
| David | 60% | £100 | £204.76 |
| Steve | 10% | £50 | £53.57 |
| Total | 100% | £350 | £350 |
Figures are illustrative only and not based on actual insurer rates. The full calculation is set out in our guide to premium equalisation in shareholder protection.
Getting the Shareholder Protection Insurance Structure Right
The company pays the premiums, but how the benefit in kind is equalised between shareholders depends on the specific shareholders involved, their respective shareholdings, and their ages and health. This is a structuring decision worth getting right at the outset, since unwinding or restructuring an arrangement later is more complicated than setting it up correctly the first time.
For more on how the wider arrangement fits together, see our guide to shareholder protection insurance, or get a shareholder protection quote and we will help you work through the right structure for your shareholders.
Last reviewed: June 2026 — Next review: April 2027. Tax rates and thresholds are subject to change. This article will be updated following each HMRC Autumn Budget or Spring Statement where relevant thresholds change.
Frequently Asked Questions About Shareholder Protection Insurance Premiums
Who pays the premiums for shareholder protection insurance?
The company pays the premiums. It owns a policy on each shareholder's life, written into trust for the benefit of the other shareholders.
What is premium equalisation in shareholder protection insurance?
Premium equalisation sets the benefit in kind each shareholder is taxed on by what they would gain if another shareholder died, rather than by the cost of the policy on their own life. Each shareholder's equalised premium is their share of the premium on every policy that would pay out to them.
Can shareholders pay the premiums personally instead?
No. We arrange shareholder protection as a company-owned policy, so the company pays the premiums. That is usually more tax-efficient, because the company normally receives corporation tax relief, whereas personal premiums would come from income that has already been taxed.
Why do premiums differ between shareholders on the same arrangement?
Premiums differ because each shareholder's policy is based on their own sum assured (which reflects their share value), their age, and their health profile. A shareholder with a larger stake, older age, or pre-existing health conditions will typically have a higher premium than a younger, healthier co-shareholder with a smaller stake.
Is it possible to share the cost of shareholder protection insurance fairly?
Yes, this is what premium equalisation is designed to achieve. The company pays every premium, and equalisation bases each shareholder's benefit in kind on their share of the policies that would pay out to them, so each person's tax cost follows what they stand to gain. The company's accountant normally confirms the figures.
Written by
Alex Ogden DipFA | Director | Executive Life
Alex Ogden DipFA holds the Level 4 Diploma for Financial Advisers (DipFA) awarded by the London Institute of Banking and Finance (LIBF). He is authorised by the FCA, Ref: AJO01072. View the FCA register entry.
This article is for general information only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change in future. Executive Life is authorised and regulated by the Financial Conduct Authority. Speak to a qualified adviser before making any decisions based on this content.