Business / Key Person Insurance

Business Insurance - Buy/Sell

When two or more people work together in a business, there needs to be serious consideration of the disposal of each person's share of the business in all circumstances.

Buy/Sell Insurance is the most cost effective method of funding the consideration for the transfer of an asset from one person or entity to another in the case of death, temporary disablement, permanent disability, terminal illness as well as the occurrence of a major medical event.

Hand in hand with insurance is the need for a business agreement. A business agreement (buy/sell) essentially ensures the transfer of that asset to the appropriate person or entity for an agreed formula on a specified event.

Asset or Equity (buy/sell) Questions

Will the remaining business owners enjoy being forced to work with the family members (usually the spouse) of the departing part owner?
Can the deceased owner's beneficiaries contribute skillfully to the management of the business or will they hinder the business while still drawing a full share of profits?
How much will the business pay the departing owner's estate for his or her business interest, over what period of time, where does that money come from and at what cost?

When was the last time you considered your business needs and do you have an agreement in place?

Don't put it off any longer call our office for your insurance needs and we can refer you to our solicitors for the preparation of the agreement.

Business Insurance - Debt Reduction

Lenders usually require personal guarantees prior to providing financial assistance. Issues arise when a business owner, a guarantor or a key person dies, is totally disabled, is temporarily disabled, becomes terminally ill or suffers from a major medical event.

Liability Questions (debt reduction/guarantor protection)

Will the bank call in all guaranteed loans because of concerns about the capacity of the business to remain viable?
How will the business repay its loans now that one of the business owners has died, is permanently incapacitated or has suffered from a major medical event?
If the business can't repay the loans, will the bank call for the immediate repayment and renegotiation of personal guarantees given by all of the owners? What impact will this have on the employees of the business?

When was the last time you considered your business needs and do you have a succession plan for your business and your employees?

Don't put if off any longer call our office.

Business Insurance - Key Person

Economy Recovers, but businesses are still vulnerable

Far too may Australian businesses are unaware of the severe financial impact that the loss of an owner, partner, majority shareholder or an employee with a high level of expertise can have on the financial viability of a business if they were to die or became incapacitated as the result of an unforseen illness or accident.

Optimism has again re-emerged in the business community in response to the recovery of the share market as it rebounds from its 2009 low. However, this optimism may evaporate very quickly if business owners were to realistically assess their vulnerability and the consequences the loss of a Key Person will have.

Business owners, with little hesitation, will install antivirus software to protect their IT; they will insure plant, buildings and equipment against damage or loss as the result of fire or vandalism; engage the services of security companies to safeguard premises after hours - and yet the human asset - the very asset that produces the business wealth – is so often disregarded and overlooked with the potentially tragic consequences for the business.

The 2008 Cameron Research Report revealed that ONLY 6% of SME Business Owners in Australia had Key Person Protection and highlighted the extent of the underinsurance problem for businesses and their future.

Whilst material assets can generally be replaced, good people are hard to find, especially as the War for Talent intensifies for competent, experienced talented employees.

So how do businesses identify their key people?

A Key person in any business is someone whose death, disablement or critical illness could have an adverse economic impact on the business such as -

The disruption to the normal day to day operations of the business
The loss of a very important specialised skill
The company’s credit rating could be impaired
The ability to secure financing is jeopardized
A significant project could be halted or delayed
The business may need to incur debt or redeem stock in order to meet a financial obligation or pay a benefit

The purpose of Key Person protection insurance is to provide a source of funds that can be utilized by the business to offset those unforseen costs and losses to the business that would arise upon the death, disablement or critical illness of the key employee.

Key Person protection may be used as a source of revenue to protect against the loss of income and profits or capital to provide funds to replay a business debt in the event of the Key Person’s death, disablement or critical illness.

The benefits Key Person protection provides includes -

A source of cash to enable the business to attract the most suitable replacement for the position
Available cash to replace the loss of turnover ad profit
A source of cash that will fund existing business operational activities, including any expansion plans
A source of cash to replay any outstanding business loans or financial obligations

Of course there are alternatives to Key Person insurance protection such as the use of savings, borrowings or selling of assets - and these may be available to the business owner to fund the unforeseen financial contingency.

However, all these options are costly and some may simply not be feasible or practical. Key Person protection offers a far less expensive alternative - and most importantly, financial peace of mind!