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 most commonly paid personally by each shareholder. Because shareholder protection insurance policies are usually written under trust for the benefit of the other shareholders rather than owned directly by the company, each shareholder typically takes out a policy on their own life and pays the premium themselves, so that the payout flows directly to the people who need it to buy the shares.
Key facts
- Premiums are most commonly paid personally by each shareholder under a trust-based ownership structure.
- It is possible to structure shareholder protection insurance with company-paid premiums, though this can carry different tax implications.
- Premium equalisation arrangements address the unfairness of some shareholders paying more than others for equivalent cover.
- 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.
Who Pays Shareholder Protection Insurance Premiums: Personal vs Company?
Most shareholder protection insurance arrangements are funded by personal payment, with each shareholder paying for their own policy. This keeps the structure straightforward and avoids some of the tax complexity that can arise when a company pays premiums on a policy that benefits an individual shareholder personally.
It is possible to structure shareholder protection insurance with company-paid premiums instead, but this can have different tax implications, including potential benefit-in-kind treatment and may affect the suitability of certain trust structures. Speak to an adviser to establish the right approach for your business before settling on a structure.
The Premium Equalisation Problem in Shareholder Protection Insurance
Shareholders rarely hold identical shareholdings, and rarely share the exact same age and health profile. Left unaddressed, this can mean some shareholders pay considerably more for their share of the overall protection arrangement than others, even though everyone benefits equally from the certainty the arrangement provides.
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, less healthy, or simply hold a bigger stake can end up significantly out of pocket compared with their co-shareholders.
How Premium Equalisation Works
Premium equalisation is an arrangement that compensates shareholders who pay higher premiums, for example due to age, health, or a larger shareholding, so that no individual shareholder is left financially disadvantaged by the cost of the cover. In practice, this typically involves calculating each shareholder's premium, identifying the average or a fair baseline, and arranging additional payments between shareholders (or via the company, depending on structure) so the net cost is shared more equitably.
Illustrative Example of Premium Differences
Figures are illustrative only and not based on actual insurer rates. Premium equalisation arrangements can be used to share the combined cost more fairly across the arrangement.
Getting the Shareholder Protection Insurance Structure Right
Whether premiums are paid personally, equalised between shareholders, or paid by the company, the right approach depends on the specific shareholders involved, their respective shareholdings, and the tax outcomes each option produces. 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?
This depends on how the arrangement is structured, but premiums are most commonly paid personally by each shareholder, since shareholder protection insurance policies are usually written under trust for the benefit of the other shareholders rather than owned by the company.
What is premium equalisation in shareholder protection insurance?
Premium equalisation is an arrangement that compensates shareholders who pay higher premiums, for example due to age, health, or a larger shareholding so that no individual shareholder is left financially disadvantaged by the cost of the cover.
Can the company pay the shareholder protection insurance premiums instead?
It is possible to structure shareholder protection insurance with company-paid premiums, but this can have different tax implications, including potential benefit-in-kind treatment, and may affect the suitability of certain trust structures. Speak to an adviser to establish the right approach for your business.
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 pay more 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. It involves calculating each shareholder's premium, identifying a fair baseline, and arranging additional payments between shareholders so the net cost is shared more equitably across the arrangement.
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.