Case Study
Jack and Bill have recently purchased an established hardware supplies company for $1.8 million.
They bring complimenting skills to the business; as Jack has experience in managing stock and Bill is great at marketing and sales. They are equal partners and shareholders ($900k); and they each have a wife with children.
Jack and Bill were referred to Core Advisor Group (CAG) by their accountant to assist in implementing Share Purchase Insurance as part of their Business Succession Plan. Appropriate values were determined and the Agreement and Insurance were put in place.
After 17 months of successful operation, Bill is out on the road seeing customers. He is in a horrific accident on the highway; and after 3 months of surgery and rehabilitation, is unlikely to ever gain full use of his legs – he is diagnosed to be totally and permanently disabled and cannot return to the business with Jack.
Upon consulting Core Advisor Group in relation to the agreement and claim, Bill’s Insurance policy is triggered and the Share Purchase Agreement allows the transfer of his shares in the business to Jack ($900k), whilst providing Bill and his dependants with a lump sum benefit to assist with ongoing income and lifestyle requirements ($900k). Thankfully, Bill had also taken Core’s advice to implement an appropriate Income Protection policy; providing him with 75% of his pre disability monthly income to age 65.
In this case all parties have received the desired outcome, as Bill’s wife had no desire to be in business with Jack. Similarly, Jack did not want to have to work with Bill’s wife and he now has 100% ownership and control of the business.
As a business owner, your business impacts on every part of your life. Ensuring you are properly insured against unexpected events, not only results in the protection of your corporate interests, but the future of your employees, your shareholders, your clientele and your family.
At Core Advisor Group we have access to a range of different business insurance products to secure the future of your business.
Business Succession
Share Purchase Insurance
Commonly known as buy/sell insurance, this is a vital process to go through for any business with multiple equity partners. Functioning much like a Will for your business, it involves all business partners entering into a legal, written agreement stating what is to happen with their individual interests in the business should one of the parties no longer be available to uphold his/her position. The agreement protects against a number of circumstances including if one or more of the business owners die or become disabled due to accident or illness.
Key Person Insurance
Ask most business owners what their most valuable asset is and generally you will find it is not their building, nor their equipment or vehicles... but their employees. Your key staff, through their skills and established company knowledge, are a vital part of your business success and the sudden loss of one or more of these key members could severely impact on your organisation.
Key Person Insurance enables your business to claim compensation for any financial loss suffered if an insured incident has occurred which has resulted in a nominated key person being unable to work. Ask us today about Key Person Insurance and how it could protect your business, and your future.
Debt Reduction Insurance
When a business owner or director secures a loan for a business, generally they sign a guarantee directly or indirectly using all of his/her personal assets as collateral. With the stringent repayment rules around business debt, in most cases this guarantee can only be dissolved when the loan is repayed in full. This means that the lender could call on the guarantee in the event of disablement or death, leaving the guarantor and their family unprotected.
However, there is a way that you can protect your assets and the future of your family. Debt reduction insurance is a form of business insurance designed to protect you and your loved ones, so that in the case of an insured event (such as death or disablement of the guarantor) the portion of the business debt guaranteed by that individual would be fully repaid. This insurance product has been created to protect business owners/directors from the consequences of providing a guarantee for a business loan.