Risk management is fundamental to a sound financial plan and the biggest risk most of us have is losing our ability to earn an income. This risk can be managed with the personal and business insurances available. 

 

Personal Protection

Protecting yourself with Income Protection, Life Insurance, Total Permanent Disablement Insurance and Trauma, is a crucial part of your risk protection strategy. Read more

 

BUSINESS PROTECTION

Protecting your business from the risk of a partner becoming ill or dying is smart business in the end. Find out how insurance is typically the right way to manage this risk. Read more


Choosing the right cover for you!

In order to get the right level of risk protection for your needs, there are four steps we follow:

  1. Cover in line with your needs — we will identify what you would like to happen if certain medical events were to occur, that could impact your ability to earn an income. We will take into consideration the assets you have currently that could be used to self insure part of your risk and we will help you calculate a suitable amount of cover.
  2. Competitively priced policies — we review the market on price and identify cost effective policies. We have access to a market comparison software to assist with this and ensure we're taking a wide reaching search of the market options.
  3. Policies that have good contracts — we filter the cost effective contracts against the quality contracts. The best policies for you will depend on your individual circumstances. Certain insurers are better for self employed people, for example, as they have more flexible 'return to work' definitions than others. Others we may favour for women for example, because the breast cancer definition is particularly good.
  4. Tax effective structuring — we see poor structuring of insurance regularly, which means a higher NET cost. Our advice is very conscious of structuring your cover to deliver a low net cost.

Below we detail the cover available to you personally, followed by cover for business owners and we then detail out a structuring option called Level Premium, which is quite often best over the long term.


PERSONAL PROTECTION

Income Protection

Income protection is the most important ‘living’ insurance cover you can have. Why? Because without your income, you cannot continue to pay your mortgage, put food on the table or carry on life financially.

Income protection is a monthly benefit that pays you up to 75% of your income and covers you if you are not able to work for a medical reason. It pays you until you are back at work and if necessary until you are 65, depending on your occupation, offering long term protection against this risk.

Income protection is tax deductible and therefore cost effective for the benefit it provides.

Life

Life insurance is all about the loved ones you leave behind and leaving them in a position where they can financially absorb the impact of losing you. A good contract will cover you against the risk of death, regardless of the cause of death.

We will help you structure your life cover so it is paid for from your ‘gross’ income instead of ‘net’, keeping the real cost of this cover to a minimum.

Total Permanent Disablement (TPD)

Total and permanent disability (TPD) cover provides a level of financial security to you if you are unable to work due to long term illness or injury.

You can interpret the name of this cover literally, as you must never be able to work again, as agreed by two doctors in order to claim, in either ‘any occupation’ or your ‘own occupation’.

Understanding the distinction between the two definitions could make a significant difference to whether you are ultimately paid out or not and this is one area we can assist.

We will also help you structure your TPD cover so it is paid for from your ‘gross’ income instead of ‘net’ wherever possible, keeping your real cost of this cover to a minimum and of course assist to identify an appropriate level of cover.

Trauma

Trauma insurance is a lump sum cover, which will pay out if you suffer a defined Trauma event.

There can be significant differences between different insurance contracts, and no more so than Trauma.

Approximately 80% of claims paid out for Trauma are for Cancer, Stroke, or Heart Attack and taking out a quality contract that is affordable is key.

This is currently the least insured risk in Australia and a very misunderstood insurance.

If you are unfortunate enough to suffer a Trauma event, this cover will make a significant difference to how you cope with it financially, both while you are acutely affected by the Trauma event, but equally importantly to give you financial options after the event occurs.

We will assist you to identify a quality contract in market to meet your needs and assist you to structure it for maximum chance of payment.


BUSINESS PROTECTION

Business Partnership Agreements

A partnership agreement is like an employment agreement or pre-nup between the partners. It is a framework for how the partners agree to work together and is intended to provide confidence and clarity to all partners now and in the future, including agreement on business succession.

Having an agreement, goes some way to ensure that if something changes in the partnership relationship or if something occurs that could make agreement difficult down the track, then there should be little dispute or confusion.

Two of the main events that a good partnership agreement should address include:

1.     Short term absence due to either voluntary or involuntary reasons

2.     Long term absence due to either voluntary and involuntary reasons (IE: a buy/sell agreement)

1.    Short term absences

Your business agreement should clearly state what your agreed policy is on paying an ill partner while they are unable to work due to medical reasons. The process is kind of like deciding how much sick leave you are prepared to cover for each other. Once agreement is reached on a time frame then it is important that each director have their own personal Income Protection and Trauma insurance, to cover their own risk.

With this said, the loss of a key person in the business can also have direct impact on the financial viability of the business and there are two policies available to protect your risk in this area.

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Key man insurance

When a key person dies or is severely disabled, it can create immediate and long term financial problems for the business.

A drop in revenue is often inevitable when a key person is no longer there, however losses can also result while the business is searching for and training a suitable replacement.

When there is not a suitable replacement within the business, it can sometimes take a significant amount of time and money, to find and train a successor.

Key man insurance helps insure against this risk.

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Business expenses insurance

Business expenses insurance provides money to meet the businesses fixed expenses, in the event that you, one of your business partners or major contributors to the business revenue is unable to work.

When a business owner is not able to actively work in the business, it will likely have a direct impact on income levels, so in order to ensure the fixed costs of the business can still be paid, Business Expenses is a must have cover.

2.    Long term absences (voluntary and involuntary)

All business partnerships should be underpinned by a clear buy/sell agreement to address the inevitable departure of a partner. This could be voluntary, such as when they want to sell down due to retirement or due to an involuntary departure, such as death or disablement.

In the case of the latter, the cheapest and most sensible way to underpin this agreement financially is usually insurance.

We have assisted many of our business owner clients to develop and prepare a buy/sell agreement and with advice on appropriate insurance protection.

We work in conjunction with Solicitor’s on the draft agreement and have solicitors we could recommend who specialise in this area. We have regularly facilitated meetings between our clients and the chosen Solicitor to ensure the end document is well considered and marries off with the chosen insurance solution.

We will help you define a suitable insurance cover level and structure it to work tax effectively for you, while providing flexibility. Each of these points are easily misunderstood or incorrectly implemented and we often find we are helping clients fix or improve aspects of their existing agreements when they think it is already in order.

Buy/Sell protection

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Life Insurance

Life insurance for business owners is an inexpensive way of funding the buyout of a deceased business owner’s interest. This ensures the deceased’s family is adequately paid out for their estate interest in the business and allows the surviving business partners to affordably take over ownership of the deceased partner's share.

The reality is that if you do not have Life insurance for this purpose, with a buy/sell agreement expressing shared wishes to back it up, it is often not possible for the surviving partners to raise the funds to pay for the interest. Even when it is possible, it is often not how the surviving partners would prefer to use their finite capital and can result in financial duress. Furthermore, it can stretch out the process, when negotiations on value are worked through with the estate.

In the event that capital cannot be raised, it can result in the estate (usually the spouse) taking an active interest in the business which they may have no real understanding of.

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TPD Insurance

TPD insurance is an inexpensive way of funding the buyout of a permanently disabled business owner’s interest.  In this situation it is as final as life insurance from a business perspective, as the disabled partner, must never be able to work again in the business, in order to meet the definition for payment.

In this instance, the desire to sever financial relationships is usually equally sought by the disabled party and the remaining partners. For the disabled partner, they no longer have any control over the success of the business and their share in the business can represent a large portion of their wealth. Therefore, it is usually preferable for them to cash out. Coupled with this, they will likely have a lot more expenses and other priorities on account of their disability.

For the remaining business partners, the insurance provides an affordable way to fund the buyout, so they can keep on with business as usual.

In the event that capital cannot be raised, it can result in the estate (usually the spouse) taking an active interest in the business which they may have no real understanding of.


STEPPED VS LEVEL

When you set up your insurance, you will have the choice of Stepped or Level Premium. Stepped Premium is initially cheaper than level, however will increase significantly as you age. Level Premium however, will not increase due to you getting older.

Depending on your age, the potential savings on level premium can run into six figures and is therefore a very important consideration, as part of insurance structuring.

Below is an example of how Level Premium works.

The graph shows the price of a level premium Trauma contract at $200,000 of cover for an office worker.

It demonstrates that at every interval you would be better off having set up a Level Premium at an earlier age. For the 25 year old with the foresight to put this cover in place immediately, they will maximise their cover time, being protected over 40 years and will save a considerable amount of premium as well.

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