Business insurance

1. Business insurance

2. Overview • Risk management • Who is a key person ? • What is business succession planning ? • What role does your financial adviser play ?

3. Risk Management • Three worlds of risk • Business: Key person insurance - designed to protect the business against • shortfalls of revenue, loss of value and to ensure its ongoing viability. • Shareholder:Bussinesssuccesion planning(BSP) is about the shareholder, • not the business. It aims to provide certainty for the departing owner, as well • as the remaining business owners • Individual: Personal Risk management of issues, particularly identifying if • there is a shortfall of assets required to support beneficiaries

4. Risk Management 1. What business risks are present? Business Succession Expense/ Overheads Key-person 2. Are these risks to be retained, transferred or reduced Retain? Transfer? Reduce? 3. What does the strategy look like? Buy-Sell Sum to Insure Policy Ownership

5. Who is a key person ? • Every business has key staff/managers/directors without whom the business would struggle, for example • key sales staff • key technical specialists • working directors • Other key persons can include: • key suppliers • silent partners providing capital / contacts

6. Impact of losing a key person • Loss of clients • Loss of goodwill and damaged credit rating • Personnel replacement and development costs • Reduction in business growth and development • Reduced profitability and business value

7. Key person protection • Term/TPD/Trauma cover on the lives of key people whose loss would cause the business to suffer • Compensation for loss of production and loss of revenue • Cost of finding and training suitable replacement • Can provide much needed buffer period to allow replacement to be found and trained

8. Tax treatment of key person protection • Revenue purpose • premiums deductible • proceeds assessable income • Capital purpose • premiums not deductible • proceeds not assessable as income (but CGT may apply) • Purpose of cover can change over time - purpose at last renewal determines the • tax treatment

9. Capital purposes • Pay off loans the key person had guaranteed • Pay off shareholder loans • Providing funds to pay creditors • Protect credit rating • Protect against loss of major supplier • Offset loss of goodwill

10. Revenue purposes • Cover lost revenue and profits • Cover expenses of replacing key person • Cover cost of hiring replacement • Compensate for loss of clients or contacts

11. Business succession planning • Departing / deceased owner secures a fair value on exiting • Remaining owner get the control he/she needs Business succession plan provides certainty and peace of mind for all parties

12. Buy/sell agreement trigger events • Triggering events for the buy/sell agreement are typically insurable events – • what are these? • Events which are uninsurable should be considered by shareholders – what • are these?

13. Buy/sell agreement: example XZY Pty Ltd 50% 50% Shareholder A Shareholder B

14. Buy/sell agreement: example XZY Pty Ltd 50% 50% Shareholder A (deceased) Shareholder B

15. Buy/sell agreement: example XZY Pty Ltd 50% 50% Shareholder A (deceased) Shareholder B A’s shares transferred to B pursuant to buy/sell agreement Insurance proceeds paid to A’s estate if (self-owned policy)

16. Funding alternatives • Savings • Borrowings • Instalments • Insurance • Self • Cross • Trust • Business • Super

17. What if the client is uninsurable? • Buy/sell agreement can still be effective • Take out insurance where available • Where insurance is unavailable, then in the event of the triggering event by uninsured owner • Buy/sell agreement provides mechanism for shares to be transferred • Surviving owner(s) purchase shares from departing owner or estate by instalments (to avoid putting the business in financial stress)

18. Role of financial adviser • The adviser manages the product selection, insurance application and policy ownership decisions • The adviser can co-ordinate the process, drive engagement both with yourself and other professionals • Accountant will determine the valuation method and any other tax implications • Solicitor will draft any agreements

19. Summary • Key person cover can be essential to ensure the ongoing viability of your business • A buy/sell agreement provides the departing owner with a fair exit value in relation to his/her share of the business, while providing the remaining owner with control over the business’s future direction. • A buy/sell agreement is a solution for dealing with fundamental events such as death, TPD and trauma and the resulting legal issues

20. Disclaimer Important information This presentation has been prepared by Charter Financial Planning Limited AFSL Licence Number 234665to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. It is not intended that it be relied on by recipients for the purpose of making investment and/or business decisions. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. You should obtain a copy of any relevant Product Disclosure Statement (PDS) before making a decision to invest in any financial product. Copies of PDS can be obtained from your adviser or by contacting us. Every effort has been made to ensure that the presentation is accurate, however it is not intended to be a complete description of the matters described. Neither AXA nor Charter gives any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as any liability under statute cannot be excluded, AXA Charter, it's employees, and authorised representatives do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person. This information is provided for persons in Australia only is not provided for the use of any person who is in any other country.