Business insurance
Overview
 Risk management
 Who is a key person ?
 What is business succession planning ?
 What role does your financial adviser play ?
Risk Management
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Three worlds of risk
Business: Key person insurance - designed to protect the business against
shortfalls of revenue, loss of value and to ensure its ongoing viability.
Shareholder: Bussiness succesion planning(BSP) is about the shareholder,
not the business. It aims to provide certainty for the departing owner, as well
as the remaining business owners
Individual: Personal Risk management of issues, particularly identifying if
there is a shortfall of assets required to support beneficiaries
Risk Management
1. What business risks
are present?
2. Are these risks to
be retained,
transferred or reduced
Key-person
Business
Succession
Expense/
Overheads
Retain?
Transfer?
Reduce?
3. What does the
strategy look like?
Buy-Sell
Sum to
Insure
Policy
Ownership
Who is a key person ?
 Every business has key staff/managers/directors without
whom the business would struggle, for example
 key sales staff
 key technical specialists
 working directors

Other key persons can include:
 key suppliers
 silent partners providing capital / contacts
Impact of losing a key person

Loss of clients

Loss of goodwill and damaged credit rating

Personnel replacement and development costs
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Reduction in business growth and development
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Reduced profitability and business value
Key person protection

Term/TPD/Trauma cover on the lives of key people
whose loss would cause the business to suffer

Compensation for loss of production and loss of revenue

Cost of finding and training suitable replacement

Can provide much needed buffer period to allow
replacement to be found and trained
Tax treatment of key person
protection
 Revenue purpose


premiums deductible
proceeds assessable income
 Capital purpose


premiums not deductible
proceeds not assessable as income (but CGT may
apply)
 Purpose of cover can change over time - purpose at
last renewal determines the
 tax treatment
Capital purposes

Pay off loans the key person had guaranteed
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Pay off shareholder loans
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Providing funds to pay creditors
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Protect credit rating

Protect against loss of major supplier

Offset loss of goodwill
Revenue purposes

Cover lost revenue and profits

Cover expenses of replacing key person

Cover cost of hiring replacement

Compensate for loss of clients or contacts
Business succession planning

Departing / deceased owner secures a fair value
on exiting

Remaining owner get the control he/she needs
Business succession plan provides certainty
and peace
of mind for all parties
Buy/sell agreement trigger events
 Triggering events for the buy/sell agreement
are typically insurable events –
 what are these?
 Events which are uninsurable should be
considered by shareholders – what
 are these?
Buy/sell agreement: example
XZY Pty Ltd
50%
Shareholder
A
50%
Shareholder
B
Buy/sell agreement: example
XZY Pty Ltd
50%
Shareholder
A
(deceased)
50%
Shareholder
B
Buy/sell agreement: example
XZY Pty Ltd
50%
Shareholder
A
(deceased)
50%
A’s shares transferred
to B pursuant to buy/sell
agreement
Shareholder
B
Insurance proceeds paid to A’s estate if (self-owned policy)
Funding alternatives
 Savings
 Borrowings
 Instalments
 Insurance

Self

Cross

Trust

Business

Super
What if the client is uninsurable?

Buy/sell agreement can still be effective

Take out insurance where available
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Where insurance is unavailable, then in the event of the
triggering event by uninsured owner
 Buy/sell agreement provides mechanism for shares to be
transferred
 Surviving owner(s) purchase shares from departing owner
or estate by instalments (to avoid putting the business in
financial stress)
Role of financial adviser

The adviser manages the product selection, insurance
application and policy ownership decisions

The adviser can co-ordinate the process, drive engagement both
with yourself and other professionals

Accountant will determine the valuation method and any other tax
implications

Solicitor will draft any agreements
Summary

Key person cover can be essential to ensure the
ongoing viability of your business

A buy/sell agreement provides the departing owner
with a fair exit value in relation to his/her share of
the business, while providing the remaining owner
with control over the business’s future direction.
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A buy/sell agreement is a solution for dealing with
fundamental events such as death, TPD and
trauma and the resulting legal issues
Disclaimer
Important information
This presentation has been prepared by Charter Financial Planning
Limited AFSL Licence Number 234665 to provide you with general
information only. It is not intended to take the place of professional
advice and you should not take action on specific issues in reliance on
this information. It is not intended that it be relied on by recipients for
the purpose of making investment and/or business decisions. Before
making an investment decision, you need to consider (with or without
the assistance of an adviser) whether this information is appropriate to
your needs, objectives and circumstances. You should obtain a copy
of any relevant Product Disclosure Statement (PDS) before making a
decision to invest in any financial product. Copies of PDS can be
obtained from your adviser or by contacting us. Every effort has been
made to ensure that the presentation is accurate, however it is not
intended to be a complete description of the matters described.
Neither AXA nor Charter gives any warranty as to the accuracy,
reliability or completeness of information which is contained in this
presentation. Except insofar as any liability under statute cannot be
excluded, AXA Charter, it's employees, and authorised
representatives do not accept any liability for any error or omission in
this presentation or for any resulting loss or damage suffered by the
recipient or any other person. This information is provided for persons
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