Poole Group

Business Insurance

THE IMPORTANCE OF BUY/SELL PROTECTION

Every business with two or more owners needs to consider what would happen to the buisness if one of the owners left due to premature death, total and permanent disability or a traumatic illness.

If the correct insurances and legal agreements are notput inplace, some of the problems that can occur are:

The exiting business owner (or, in the case of death, his/her estate) can make demands on the business for it to be would up, to be paid out for his/her interest in the business, or for the repayment of loan balances. The estate may also insist on immediate and direct involvement in the control and operation of the business.
In the event of total and permanent disability, or one of the owners suffering a trauma event (e.g. cancer), there may be uncertainly over the likelihood of the business owner recovering or ever returning to work, but are still forced to release income and profits to the non working owner.

HOW DOES BUY/SELL INSURANCE WORK?

There are two main components of a buy/sell agreement; one being the insurance cover, the other is a legal document drafted by a solicitor which ensures the transfer of the business is done correctly.

A buy/sell agreement sets out what will happen to the business when a "trigger event" occurs. A "trigger event" can involve:

Death
Total and Permanent Disablement (TPD)
Trauma

Retirement can also be a trigger event under the agreement , but for the purpose of this article, we are focusing on the insurance events. Importantly from a funding perspective, insurance is the most comprehensive and cheapest form of business succession available.

Business Expense

Imagine losing your business for reasons outside of your control. It is a business owners worst nightmare. Business expense can help to cover your business expenses when you are unable to work. Benefits are paid monthly up to the insured persons share of allowable business expenses while unable to work due to sickness or injury. The trustee of a family trust or company can also take out the policy to insure against your disablement.

Allowable Business Expenses may include (but is not limited to) rent and insurances of business premises, utility services such as telephone and electricity, leases on equipment, employee salaries, advertising costs, and other fees. It does not, however, cover your own salary or related costs to you.

We'll work together with your Accountant to ensure your allowable business expenses are accurate.