Two areas of business insurance are business expenses and key man insurance
Business Expenses Insurance
A small to medium business operator who is generating most of the income for that
business income protection may not provide enough income.
The maximum of 75% of income generated by the insured, net of expenses, may not
be enough to pay ongoing expenses in order to keep the business viable. Without
business expenses cover, they could find that their income replacement benefit is
used up paying the business creditors.
Under normal conditions 100% of the regular business expenses can be insured, even
they themselves are not working. These expenses include salaries of support staff
(not directly producing income), rent, mortgage, interest payments on premises and
utilities. Most Product Disclosure Statements (PDS) include a list of covered expenses.
What normally cannot be covered are the salaries of staff directly producing income,
mortgage capital repayments and any expenses, which would cease if the insured stopped
working.
Business expenses can be usually written as a separate or stand alone policy, however,
it is more frequently complements an income protection policy, saving a great deal
of doubling up on underwriting.
Key Person Insurance
Many businesses neglect to make provisions to fund an outgoing owner’s interest
in the business in the event of a business partner dying or being unable to work.
The consequence s are often a major restructure, extra financing to pay off outgoing
heirs or liquidation.Unfortuneately,when deceased partners heirs get involved in
continuity decisions they are most likely will want to liquidate their assets.
Capital Protection
Capital Protection enables a business to buy back shares from the estate of a deceased
shareholder. A Buy/Sell Agreement is put in place to ensure that all parties receive
their entitlement
Revenue Protection
The purpose of life insurance over a key person in a company or partnership is to
replace the revenue lost and to replace the person in the event of death, total
permanent disability or trauma.
Where an insurance policy is taken out to protect the revenue of a business, the
premiums are tax deductible providing key taxation requirements are satisfied. It
is prudent practice at the time a business takes out or renews key person revenue
protection insurance, that the company’s board of directors meeting minutes reflect
this decision
|