Introduction:
It is important to focus on what will happen to your personal lifestyle and family if you become ill or die and look for solutions to solve the potential problems. Insurance can provide an effective solution. But if you are a business owner, not only can your own health problems have a detrimental impact, but so can the health problems of other people who are important to your business. Luckily, this impact can also be mitigated through insurance and proper planning.

Simplifying Business Insurance:

If you thought business insurance was all too hard and struggle to get your head around dealing with business structures, legal agreements, and taxation implications, look again. You may be surprised how easy it really is with some good advice and guidance.

Step-by-Step Guide:

Step 1 – Identify the Need
The initial step is always to work out the specific goals and needs for you and your family and identify the risks that need to be managed. Identify who is a key person in your business and what is at risk if something happens to that person. The main areas of concern might include:

• The ability to repay a loan or to release a bank guarantee
• Access to a cash reserve to pay expenses if revenue drops
• The ability to fund the buyout of another partner’s business share

Example:
Bill and Kate operate a courier business through their company BusyAs Pty Ltd. Kate manages the client relationships, and they are particularly concerned that if something happens to Kate, the relationships will suffer and business revenue will fall. Bill and Kate decide to take key person insurance on Kate’s life. This will provide a cash reserve to keep the business running while Kate recovers or the revenue can be stabilized.

Step 2 – Deciding on the Policy Owner
Once you decide the type of insurance (death, total and permanent disability, trauma, or business expenses) and how much, your next step is to decide who to make the policy owner. For business insurance, your options can include the life insured, the business, an insurance trust, or another person (e.g., business partner or spouse). The most efficient way to do this is to make the person or entity that ultimately needs the cash the policy owner.

Example:
To keep the business running, Bill and Kate need the money to end up in the BusyAs bank account. They decide to make BusyAs the policy owner.

Step 3 – Check the Taxation Implications
Taxation is where business insurance can get tricky, but you don’t need to work alone on the solutions. You should always work with your tax adviser or accountant for advice and support. In this step, review the taxation implications for the premium (i.e., decide whether the premiums are tax-deductible or not) and also the taxation implications for the proceeds received (i.e., whether taxable or tax-free). The taxation outcomes are impacted by the purpose of the cover and who is the policy owner. In some cases, the taxation outcomes may change the decision made in Step 2 as to whom to make the policy owner.

Step 4 – Get Legal Agreements Drawn Up
If the policy owner is not the ultimate beneficiary of the insurance proceeds or you are setting up insurance to fund a buy/sell agreement, the appropriate transfer agreements need to be drafted by a legal professional. It is important that the legal professional has a full understanding of the insurance arrangements and structure to ensure the correct drafting of the agreements to get the right amounts to the right places.

Conclusion:
Your financial planner will play a key role in designing an insurance package to meet your business needs. This requires coordination and cooperation with an accountant and possibly a legal professional. Make an appointment with us today to discuss your business needs and how to protect you, your family, and your business.

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.