Do you have two or more people who own your business?
What would happen if one of the partners died or suffered an illness or injury which prevented them from temporarily or permanently working in the business?
Have you decided what will happen when one of the partners wants to retire or perhaps wants to go in a different direction?
How would the revenue currently generated by the business be affected if one of the key income generators was temporarily or permanently absent from your business due to illness, injury or premature death?
Buy Sell Agreements and Key Person Insurance are vital to protect your business in these situations.
A Buy Sell Agreement defines the process for the orderly transfer of ownership of the business to the surviving owner(s), should one of several trigger events occur (eg death or serious disability). If such an event was to occur, the remaining owner(s) would need to raise sufficient capital to buy the departing owner’s share of the business.
Life insurance is generally recognized as one of the most cost-effective solutions to raise the required capital.
A properly funded Buy Sell agreement can be thought of as estate planning for your business – think of the Buy Sell agreement as a ‘business will’ and the insurance proceeds as the assets of this will.
The purpose of Key Person Insurance is to provide an amount of money to offset the estimated loss to the business that would arise upon death, disablement, or critical illness of the specified key person. A key person in any business is someone whose death or disablement would have an adverse economic impact of the business.
Key person insurance may be used either for a revenue purpose (to protect against loss of income and profits), or a capital purpose (to provide funds to repay business debt) in the event of the key person’s death or disablement.
Key person insurance can be a far less expensive alternative compared to using savings, borrowing or selling assets.
This information is of a general nature and may not be relevant for your personal situation. Please call us on 03 9290 9200 to arrange a personalised consultation.
The material on this web site is only of general informational value. No person should act or refrain from acting solely on the basis of this material. It does not constitute professional advice of any nature and your access to this web site does not, of itself, give rise to a relationship of an adviser (in any form) and client.