Business insurance

We all know that running a business can be risky. Having adequate business protection insurance can help minimize risk. Without these insurances families and business associates could find their financial security jeopardized.

Whether your business is structured through a partnership, company or a trust, we can help you put an effective structure in place for the transfer of the equity and control of your business, if one of the owners suffers death, total and permanent disability or a critical illness. Sadly, when a business loses a owner/partner, an otherwise sustainable business will often go into decline, simply because there was no succession plan and funding agreement is place.

There are three basic business protection needs that typically apply to business:

  1. Asset protection

    When business owners are asked what their most important business assets are, they usually opt for physical assets. However, it is the intellectual capital provided by key people to the business, who employ these assets to generate profits. It is these key people that are the most important assets to the business. A key person`s death or disability can result in a loss more disastrous than any loss of or damage to physical assets.
    Similarly, customers and suppliers may not feel confident in the trading capacity of the business and credit ratings could fall if lenders are not prepared to extend credit.
    To overcome these problems, a business would need to have readily available cash reserves. The business may have to sell business assets, borrow cash, absorb financial loss from current profits or have an asset protection insurance that provide the business with enough cash reserve so it can repay debts, free up cash flow and maintain its credit standing.
    The following policies are used to protect assets and are generally non-tax deductible:

  2. Revenue Protection

    A drop in revenue is often inevitable when a key person is no longer present. Finding and training a suitable replacement often takes time. At this stage, many errors of judgment by a less experienced replacement can often occur.
    Revenue protection can provide businesses with cash to compensate for the loss of revenue and/or costs of replacing a key employee or business owner should they die prematurely or become disabled.
    Policies that are taken for the purpose of protecting revenue are considered tax deductible. The proceeds of the payments are assessable income to the business.

  3. Ownership protection

    While the co-owners are alive they can at least negotiate a buyout amongst themselves but what if one of the owners dies prematurely. The continuing owner/s has to then negotiate with the deceased owner`s legal personal representative, who may well be more concerned with the needs of the estate than those of the business.
    The continuing owner/s can raise the required cash to fund the buyout by realizing business and personal assets, borrowing cash, paying off the deceased owner`s beneficiary gradually or utilizing business protection insurance.
    Ownership protection insurance can provide the continuing owners or their nominee with sufficient cash for the transfer of the outgoing owner`s equity to the continuing owner.

The tax treatment of insurance premiums and proceeds contain different structures and can vary depending on who owns the policy.

At Investlink Group Pty Ltd we are equipped to talk about this complex issue, and simplify your business insurance requirements.

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