Business Assurance

Long Term Assurance - Business

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personal

We undertake a business assurance needs analysis to identify specific needs. This could be in the form of sinking funds, key man assurance and partnership assurance. We draft the agreements for perusal by the client’s attorneys and source the most cost effective insurance to match the needs.

 

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discovery


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momentum


oldmutual


sanlam

Business Assurance

Life & disability cover is critical for business purposes.

  • The key individual of a business should be covered to protect the business & employees from the financial impact should something happen to him/her and to ensure continuity of the business.
  • Shareholders of a business can take out life policies on the lives of other shareholding partners according to the shareholding agreement and value of the business.
  • Business overheads insurance can protect the business from a temporary setback in the event of disability & illness of a key individual which will ensure the continuation of the business.
  • Tax implications should also be considered when proposing business assurance policies.

 

Key Person Insurance

The problem

Losing a key person could mean:

  • A slowdown in turnover
  • Decline in profitability and/or sales
  • Stricter terms from suppliers
  • Difficulty in raising finance
  • Loss of expertise
  • Delay in finding a successor
  • The high cost of finding a successor. 

The solution

Key person insurance provides the necessary funds to overcome the negative impact caused by the death or disability of a key person.


An employer insures the life of a key employee for the purpose of compensating the business for the loss of income that it would suffer in the event of that employee’s death or disability. The
Life cover payment can then be used to absorb disruptions to the business and provide funds to recruit and train a suitable replacement.


Anyone who significantly improves the profit ability and effective management of your business could be considered a key person. For example, anyone with specialist, expert skills vital to success in your industry, who attracts and retains competent staff members, whose presence in your organisation increases the, creditworthiness of the business and who builds goodwill for the business.


When attempting to determine the value of a human life, no predetermined formula or set of rules can be applied. In practice, the amount of key person cover is usually determined using one of the following methods:

  1. Seven times the annual salary of the key person; or
  2. The estimated number of years that it would take for a replacement to reach the key person’s present level of profitability, multiplied by the drop in profits as a result of  the death or disability of the key person; or
  3. Itemising the costs involved in replacing the key person. Such costs could involve the following:
  • The actual cost of replacing the key person
  • The key person’s worth to the business in terms of net profits
  • The cost to the business if the key person were to die or become disabled today
  • The degree to which the business wishes to protect itself against the loss that would be sustained upon the loss of the key person.
  • The third method is recommended since it focuses on more specific costs and one is more likely to arrive at an accurate figure than by using either the first or second methods.
  • If the life cover contract is structured so that the benefit payment is fully taxable in the hands of the employer, the amount of cover purchased should be increased.


On the death or disablement of the key person, the life cover payment will ensure: an interim cash amount for recruiting, training and/or development of new employees the continued existence and development of the business that existing/potential contracts are not affected that the creditworthiness of the business is not affected.

 

Buy & Sell Insurance (Partnership Insurance)

The need
If one of the co-owners of your business were to die or become disabled, what would happen to that person's share of the business?

The problem

  • The loss of a co-owner could mean:
  • The existence of the business may be in jeopardy
  • Credit facilities may be affected adversely
  • Outsiders may obtain a controlling interest
  • Remaining co-owners may be unable to afford the deceased's interest or shares
  • The business interest may be sold for a value below fair market value. 

The solution

Buy & sell insurance is risk insurance that business co-owners take out on one another’s lives to enable them to buy a deceased or disabled co-owner’s share in the business.

  1. The co-owners enter into an agreement where they undertake to purchase the interest of their fellow co-owners should any of them die or become disabled.
  2. A co-owner effects a life policy on the life of another co-owner and vice versa.

Each co-owner will consequently own a benefit on the life of the other and pay the premiums under the benefit of which they are owner.

  1. A life policy provides the cash to facilitate the purchase of an interest in the business, thus ensuring business continuity and the financial welfare of a deceased's dependants.
  2. When more than one co-owner is involved, the benefit on the life of each co-owner will be jointly owned by the other co-owners, proportionate to their interest in the business.


Certainty regarding the sale of the co-owner's interest in the business
A purchase price negotiated by the parties concerned, ensuring that the co-owner or his/her dependants receive the full value of the business interest
An immediate cash payment, which can substitute the income lost as a result of the death or disability of a breadwinner.


Certainty regarding the future ownership of the business the business can carry on with minimal disruption.
No risk of new co-owners joining the business who might be unskilled or incompatible
An inexpensive way of funding the purchase price.

 

Business Liability Protection

The problem


The owner will be personally liable for the debt if the business is unable to repay the loan.
Should the owner die before the debt has been settled, the creditor has the right to claim the outstanding money from his or her estate. Debts are settled at the expense of heirs and dependants and the estate may be declared insolvent if debts exceed assets.
Should the owner become disabled, the creditor has the right to claim the amount from him/her personally.


If it was required that the debt be settled from the deceased’s personal estate, the estate may claim the outstanding amount from the business or remaining owners.
The business may be forced to sell its assets should the remaining owners fail to raise funds elsewhere.

The solution

Business liability protection is risk insurance that a business takes out on the life of an individualwho stands surety for the debts of the business. The amount of cover should be equal to the loan amount.

Step 1: The bank gives the business a loan.
Step 2: The owner stand surety for the loan.
Step 3: The owner and the business agree that the business will repay the balance of the loan should the owner die or become disabled before the loan is fully repaid.
Step 4: The business effects a life policy on the owner’s life (which should ideally include life and disability cover).
Step 5: On the owner's death or disability the life policy proceeds are paid to the business.
Step 6: The business repays the loan and the owner (or the estate) is released from surety obligations.


His or her personal assets are released from any liability on death or disability.
The estate is finalised with less hassle.
The lifestyle of the dependants is unaffected.

Business liability protection protects the business from any adverse effect on its creditworthiness as a result of death or disability of the person who stands surety.
The outstanding liability is settled in full.
The financial resources of the business are not put under any undue strain.


An owner of a company often has to provide personal security for a loan taken out by the business. But what happens to the debt should this person die or become disabled?

  1. Bank provides loan
  2. Business owner stands personal surety for loan
  3. Business repays loan
  4. Agreement between business owner and business
  5. Life policy pays out to the business.

 

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106 Nicolson Street, Brooklyn, Pretoria/ Tshwane, South Africa
012 004 0380

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