(BUSINESS BUY/SELL COVER)
Ownership Insurance is designed to protect business owners and their equity, for which they have worked hard to create.
The insurance cover acts as a funding mechanism for the remaining partner(s) to buy out the equity of a deceased or disabled business partner.
How it works…
If an owner suffers a ‘trigger event’ (death or permanent disablement), the agreed value of their share in the business (usually market value) will be paid directly to their estate/family via the Ownership Insurance.
Ownership Insurance ensures;
Where there is NO Ownership Protection…
Twilight Financial Planning strongly recommends that once this Insurance policy is issued, the business documents the purpose of their cover via entering into a formalised Business Buy/Sell Agreement.
A Key Person is usually a business owner or employee who is critical to the ongoing revenue, cash flow and profitability of the business, or provides capital to the business.
The purpose of Key Person Insurance is to ensure the business can continue at the same level of operations/profitability as it would normally had a death, disablement or critical illness of a key person not occurred.
External funding of a business is usually provided based on the assumption of business continuation.
Whereby a person who is critical to the continuation of the business revenue and profitability suffers a death, disablementor critical illness, there is uncertainty and creditors will often be concerned about their outstanding funds.
Questions will arise regarding the business ability to repay their debts. Often where there is more than one creditor, they will be keen to ensure they recoup their funds as soon as possible, and may even call the debt in immediately.
Control of the business continuation is then often taken away from the owners.
Internal funding can also provide obstacles. If an owner in the business suffers death, disablement or critical illness, there is often financial stress that follows. A disabled/ill person or a deceased’s beneficiary may want to call in any loans to the business immediately.
It is often viewed that if you protect the business revenue, you protect the business continuation.
If revenue is secure, payments of wages, operating expenses, debt repayments and other overheads can continue to be met when called upon.
Key Person Insurance for ‘Revenue Purposes’, or for ‘Debt Purposes’, will allow a business to stay on top and remain in control in a time of disruption and restructure.
Business Owners and Investors often view their ownership in a business as an Asset. This asset can and should be protected against uncertainties, particularly those with the opportunity to derail the business value and viability.
Small business owners may have income protection to secure their living expenses in the event of an illness or injury; however often the fixed expenses within their business will be greater than their drawings.
If you are self employed or in a small business partnership, you can protect these fixed overheads for up to 12 months, providing you with security and flexibility to make the best decision regarding your business continuation.
When a small business owner suffers an illness or injury, commonly the real crippling effect is the obligation on the business to pay;
Premiums are a normal business expense and an allowable deduction.