System, method, and computer program product for providing financial protection of equity investments

Abstract

A system and method for determining an equity protection insurance policy (EPIC) for investors or shareholders to protect their equity investment in a business entity based on the happening of a fortuitous event is disclosed. The EPIC is in the form of an insurance policy or a put option, in which the shareholder pays lower premiums for the option to sell the equity interest in the entity to the issuer (e.g., carrier) of the EPIC upon the happening of a fortuitous event, such as an E&O claim. Alternatively, rather than receiving an indemnity payment or a purchase of the investment as protection, the present invention also can be formulated as a letter of credit. In this embodiment, the shareholder pays a very low premium in exchange for a letter of credit promising to lend the investor a predetermined amount that is calculated to be sufficient to re-establish an investor's business or start over in the same or similar line of work.

What is claimed is:  
     
         1 . A method for providing an investor with financial protection against a loss in value in an investment in a limited liability entity arising from an event against which the entity is inadequately insured, comprising the steps of: 
 a. determining an amount of primary insurance that the entity has and scope of its coverage;    b. determining one of 
 i. an amount of working capital required to reestablish the entity, and  
 ii. the investor's basis in the investment;  
   c. determining the risk classification of the entity;    d. determining the free cash flow of the entity;    e. based on at least steps b and d, determining a maximum level of coverage; and    f. determining a premium charge for a desired insurance amount in excess of the primary insurance and equal to or less than the maximum level of coverage for the risk classification determined in step c.