Jim Gleeson - Financial Planner
"I cannot direct the wind but I can help you to adjust the sails."
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"No advice" Ezicover insurance
Ezicover insurance offers:
- A lump sum payment of up to $500,000 on death or terminal illness.
- A lump sum payment of up to $150,000 on diagnosis or occurrence of a heart attack, stroke, cancer or coronary artery by-pass surgery.
- A monthly payment of up to 75% of your average monthly pre-tax income if you are unable to work due to sickness or injury.
- A lump sum payment on accidental infection of HIV (Human Immunodeficiency Virus) or Hepatitis B or Hepatitis C while working in specified occupations.
- "Do It Yourself" insurance.
Business Succession
Two of the most common forms of business structure are:
- The partnership between two or more people
- The proprietary limited company with two or more shareholders.
Each partner or shareholder's interest in the business will form part of his/her estate and, in most cases, pass to his/her spouse or children.
There are several possibilities as to what will happen to the business in such a situation.
- The business could be wound up;
- The heirs of the deceased could take that person's place in the business
- The heirs of the deceased could sell their interest to an outsider
- The surviving partners/shareholders could sell their interest in the business to the heirs of the deceased
- The surviving partners/shareholders could buy the deceased's interest from the heirs and continue with the business.
The most favoured of these possibilities or options is currently the last-mentioned but that requires borrowing the finance or foregoing profits. Partnership and shareholder insurance is designed to provide the finances needed which will avoid this financial stress on the business.
To ensure that the deceased's interest is sold to the surviving partners/shareholders, it is necessary to have a formal agreement (known as a buy/sell agreement) drawn up by their legal advisers.
The best way of providing that a set sum of money will be available at an unknown future time is for the business to fund a provision of life insurance. Therefore, taking out life insurance in conjunction with a buy and sell option agreement is normally the only way in which the partner/shareholder can be sure of having the necessary cash to buy out a deceased partnerss share.
When this is done, it is normal for the agreement to refer to the life insurance policies to be effected the agreement is then often referred to as a Funded Buy and Sell Option Agreement, as it not only sets out the terms of the agreement, but also the manner in which the funds needed by the survivors will be provided.
Your financial adviser has more information on the process. The premiums for the life insurance can be funded out of the cashflow of the business and in most cases will be a deductible cost if the agreements are set up correctly.
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P: 02 9428 1370 Mobile 0412 575 526 | E: info@futureprom.com.au
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