Air-tight life insurance for business owners.

Situation: Two business partners aged 40 and 55 establish and grow a successful specialist medical clinic. Their respective shareholdings are now commercially valuable and neither the business nor the partners have the capital to acquire the other’s share of the business.

Cover: Two policies are set up on each partner’s life for death and total permanent disability, covering the value of their shareholding. The company pays the premiums (in pre-tax dollars) and the policies are owned by each partner’s respective family trust. The younger partner accepts the higher premium cost for the older partner, as they are more likely to require funding first. The policy can be adjusted as the business value increases and requires no personal after-tax cash flow from the partners.

Outcome: At 60 years old, the older partner is diagnosed with stage 4 terminal prostate cancer and given a prognosis of 12 months. He chooses to undergo aggressive treatment and resigns from the business. The terminal illness provision of the policy is activated, and the benefit is paid to his family trust as compensation for his equity in the business. The shareholder agreement provides for the surviving partner to gain control of the business without the deceased partner’s spouse or executor becoming a shareholder. Some of the proceeds are used to fund the affected partner’s treatment, while the remainder is used to enjoy time with family and friends, including travel.

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Situation:A $15m revenue-generating financial services company seeks key person risk
management advice. We identify the CEO, senior fund manager, and business
development manager as key personnel during a risk discovery session with the board of
directors. After assessing the potential revenue, profit, and client losses due to death or total disability of each key person, we find significant financial risk that requires insurance. The
business lacks sufficient free capital to cover the losses, and bank financing would be difficult and costly.

Cover: A separate policy for each key person is established equal to the current financial
compensation required to replace the loss of revenue, profit and clients and includes
executive search and training costs. Scope is included in the policy to increase cover in the future as the company grows. The policies are set up to be owned by the relevant company in the group to ensure the benefit reaches the destination it is needed. That company becomes the payor of the policies’ premiums in pre-tax dollars. Risk management solution presented to the board of directors.

Outcome:The board of directors achieves a cost-effective, risk protection solution that, as
a percentage of revenue, is acceptable for the company’s profit and loss. The company’s
insurers reduce their professional insurance premiums and this strategy contributes to
securing new business and client opportunities, given the risk management solution in place.

Contact us to find out if your business is prepared for Key Person loss.

Situation: The owner of a dental practice generates about 70% of the clinic’s revenue and has employed a younger dentist, who is developing her own client base, along with three part-time staff. The business has been growing, with a recent renovation that included adding an extra chair, incurring a debt of $350,000. Additionally, a website and marketing plan have been implemented. We conduct a review of the business’ financial accounts to determine which expenses are fixed, ongoing, and eligible to be covered in a policy. This is also pre-assessed with the insurer.

Cover: To protect against the primary revenue generator’s potential absence, a policy is
established to cover 70% of eligible ongoing expenses. Since the younger dentist can attend to some patients, this policy only covers a portion of the expenses remaining after the younger dentist’s contribution. The trading company is the policy owner, ensuring that the benefits are paid there and can be used to reimburse the bank account for expenses incurred. A 30-day waiting period is suggested, as the clinic can cover expenses during this time.

Outcome: The owner sustained a neck injury during a personal training session, which caused significant pain while performing dentistry. As a result, she was forced to reduce her work hours and discontinue longer and more complex procedures. The younger dentist was able to cover 30% of the principal’s patients, but a locum dentist could not be secured. The policy became essential for reimbursement of eligible expenses, including debt repayments, lease payments, salaries, and other fixed costs. The policy was claimed for 9 months while the principal worked towards being fully fit for her duties.

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