Source: Wikipedia.org article, adapted under license.

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Key person insurance, also commonly called keyman insurance and key man insurance, is an important form of business insurance. There is no legal definition for “key person insurance”. In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of an important member of the business. To put it simply, Keyman Insurance is a standard life insurance, TPD insurance or trauma insurance policy that is used for business succession or business protection purposes. The policy’s term does not extend beyond the period of the key person’s usefulness to the business. Keyman Insurance policies are usually owned by the business and the aim is to compensate the business for losses incurred with the loss of a key income generator and facilitate business continuity. Key person insurance does not indemnify the actual losses incurred but compensates with a fixed monetary sum as specified on the insurance policy.

Many businesses have a key person who is responsible for the majority of profits, or has a unique and hard to replace skill set such as Intellectual Property that is vital to the organization. An employer may take out a key person insurance policy on the life or health of any employee whose knowledge, work, or overall contribution is considered uniquely valuable to the company. The employer does this to offset the costs (such as hiring temporary help or recruiting a successor) and losses (such as a decreased ability to transact business until successors are trained) which the employer is likely to suffer in the event of the loss of a key person.

Key Man Insurance Singapore | Understand Keyman Protection Insurance

Keyman insurance policy covers the key person in your organisation in the event that unexpected death or disability happens to the key person.

The key man is an important and influencial figure in the organisation. Because of that, losing the key person will mean that the company might experience loss in revenue or sales.

Therefore, purchasing a keyman insurance is an essential tool for any organisation’s continual success in the long term.

At Financialogy SG ( we provide you with the essential information about keyman insurance for your organisation.

Best laid insurance plans for the worst of times – indiannewslink.co.nz

Peter Mensah

You have spent years, sacrificed time with family and more importantly, invested your hard-earned money into building your business.

As the business has expanded and grown, you have brought others into the business and you are now not the only owner or shareholder.

But, have you thought about what might happen to your business should things not continue to go to plan? How would the business cope if something were to happen to you or your partner? And what impact would this have on your families?

The SME Challenge

Many small to medium size businesses rely on the complementary skills and abilities that shareholders bring to a business for day-to-day survival. With the increasing responsibilities of compliance, investment in time and expertise in planning for the ongoing success of the business, there is a lot at stake. Protecting against the loss of shareholders should be a must for all businesses.

While key person protection is fairly common, this covers the loss of a key person in the day to day running of the business, protection for the permanent loss of a shareholder is often ignored because the effects of this are often not thought out or contemplated.

Of course, when something does happen to go wrong it can be devastating, particularly as it usually happens at an emotionally sensitive time.

An Example

Take the example of two friends who set up a business together as single men.

As both were important to the business’ success, they took out key person insurance on each other to help the business should something happen to either one of them.

However, they declined to look at shareholder protection. Over the next few years, they both married and started families.

A couple of years later one died in an accident. The key person insurance paid out to the business to allow it to continue operating as intended. The widow of the deceased shareholder knowing of the payout assumed that this was to be for her benefit… unfortunately that was not the case and left a very unhappy and acrimonious situation.

What insuring shareholders can help protect against

If you or a fellow shareholder suffered a major critical illness, permanent disablement or death, what would happen to your business ownership? Putting in place protection for your shareholders can provide financial support to help protect against (a) the remaining owners having to borrow to raise funds to buy out the interest of the co-owner who has left the business; or (b) the remaining owners being forced into business with the spouse or dependents of the co-owner if they die; or (c) the forced sale of the business to raise enough money to pay out a deceased owner’s estate.

Other Options

Shareholder Protection however is only one of a number of protections that business owners should consider in safeguarding the future of their business.

On its own it will only do a part of the job.

Running a business is demanding enough when you are all alive and healthy, do not run the risk of losing it all by not putting the appropriate protections in place.

PIC Insurance Brokers has been helping New Zealand businesses for over 25 years. We can help you find the right solutions to protect your business should the worst happen and ensure the best outcomes.

Being 100% New Zealand owned business gives us independence which is good for you because everything we do is tailored to your needs.

We are totally tuned into all the things that affect your life.

We cover all areas of insurance from life, trauma, health, business, house, contents and vehicles.

We are proud supporters of Indian Newslink.  For more information, please visit our website www.pic.co.nz

Peter Mensah is Head of Distribution at PIC Insurance Brokers. Email: Peter.mensah@pic.co.nz

PIC Insurance Brokers is the Sponsor of the ‘Best Small Business’ Category of the Tenth Annual Indian Newslink Indian Business Awards the Presentation Ceremony of which will be held at a Gala Black-Tie Cocktails, Dinner, Speeches and Entertainment Night at Sky City Convention Centre, Auckland City on Monday, November 27, 2017 from 5 pm. Tickets for the Event, priced at $150 per person and tables seating ten persons each priced at $1500 plus GST per table are now available. Please call 021-836528. Email: editor@indianewslink.co.nz 

Cost of being caught without business protection

More than a quarter of small and medium-sized enterprises (SMEs) have missed out on insurance claims by failing to put policies in place, according to Legal & General (L&G).

The insurance provider found 29 per cent of SMEs could have claimed on a life insurance or critical illness policy in the past – yet just 12 per cent had an insurance policy in place.

Of those businesses that lacked cover and then went on to fail following a critical event, 80 per cent of their owners said a business protection policy would have saved their firm.

The research highlights the importance of the advice process, with 83 per cent of firms that had successfully claimed doing so with a financial adviser.

More than half (56 per cent) of successful claimants said the payment from the policy had saved their firm, while just 13 per cent said their business still went onto fail.

In contrast, three-quarters (77 per cent) of the firms without cover said they had suffered financially, with a loss of profits, pressure to meet debt repayments and issues over ownership found to be the main reasons for business failure.

In addition, 87 per cent of businesses that failed said key person insurance – a life insurance policy on a person vital to a firm’s operation – would have helped them to continue trading by covering the cost of replacing an employee and lost profits, as well as helping to pay off debts.

Richard Kateley, head of intermediary development at L&G, said: “Our research shows the important role business protection polices can play in helping to keep a business running after the death or critical illness of an owner or key employee. 

“Receiving a payout from a successful claim can make all the difference in giving business owners a bit of breathing space to make the right decisions about the future, rather than having to make rushed decisions or having those decisions made for them.”

Simon Claxton, director at Reading-based Macbeth Financial Services, said: “I’m sure that if more SMEs were actually aware of the cover there would be a far greater take-up.

“It is simply getting the word out that this type of cover exists, and I guess if you’re not aware of the phrase ‘key person cover’ then you’re not going to search for it. 

“Accountants and solicitors could play their part too as professional advisers in suggesting key person cover. It will not only protect their clients but also ensure their own fee/income stream is protected, too.

“There are a huge number of intermediaries too who don’t get involved with protection at all or, if they do, they don’t advise in the corporate market.

“Perhaps more education from the insurers and also the financial services networks out to the intermediary market would also be a good idea?”

Mr Claxton added that key person cover was often not considered as important as employer and public liability cover. 

9 Surprising Things You Can Claim On Tax

H&R Block director of tax communications Mark Chapman advises retailers what they can and can’t claim.

Running a business is hard enough without getting caught up in the complexities of the tax system.

So, to make things simpler, here is a beginners’ guide to the tax deductions all retail businesses should be looking to claim.

Purchases of stock

Everything that you purchase to sell in your store is tax deductible as a cost-of-sale. In addition, you can also claim for associated costs of getting stock delivered from suppliers as well as other costs of sale such as delivery charges to customers (if you pay them rather than the customer), packing, etc.

If you travel to trade fairs to examine new products, those costs are also deductible.

Write-off any lost, damaged or obsolete stock before the year end in order to claim a tax deduction.

Immediate write-off of capital purchases

Through until 30 June 2018, your business can claim an immediate tax deduction for all capital purchases which cost less than $20,000, rather than writing off the cost over several years. That could be a great way to refresh your store and generate some extra cash flow. To qualify, your business must be a small business (ie, with an aggregate turnover or less than $10 million.

Amongst the items you could look at claiming are the following:

Cash registers and other POS devices
Delivery vans
Store fittings and fixtures
Computers, laptops and tablets
In store security systems
Accounting software

Advertising and marketing costs

Advertising and marketing to sell stock, gain publicity and hire employees is all tax deductible. Costs incurred in entertaining clients and suppliers, sadly, are not deductible.

Property costs

Rent, mortgage interest, rates and land tax for your business premises are all tax deductible.

Salary and superannuation expenses

You have to pay staff wages and you also need to contribute compulsory superannuation payments for everyone on the payroll. All those costs are tax deductible. If you can get your June quarterly super payment in before 30 June, you might be able to accelerate that deduction into the current tax year (the actual deadline is in July, after the next tax year has started).

Tax expenses

All tax and accounting related expenses should be tax deductible, including the cost of hiring a bookkeeper prepare your business records, having tax returns or BAS prepared and costs associated with attending to an ATO audit or objecting to a tax assessment which you think is incorrect.

Fringe Benefits

Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the Fringe Benefits Tax (FBT) they pay on those benefits. A fringe benefit is a benefit provided to an employee (or their associate) because that person is an employee (or a former or future employee) and can include items such as cars and car parking spaces.

Business Insurance

Premiums you pay for business insurance are generally tax deductible provided they are connected to your business’ capacity to earn an income or to protect its assets.

This means that premiums for workers compensation insurance, professional indemnity insurance, fire damage, theft cover, public liability insurance, loss of profits and commercial motor vehicle insurance are all tax deductible.

Premiums for key person or key man insurance, a type of policy which offers a benefit payment when an important company employee is incapacitated and no longer able to work, can also generally be claimed as a tax deduction provided the key person cover is was taken out to protect your business’ revenue.

Reorganising your business tax-free

Not a tax deduction as such, but a tax relief that applies to small businesses, the government has recently introduced new measures which allow businesses to reoganise themselves without incurring unexpected income tax consequences, such as capital gains on asset transfers. This is particularly valuable for new and expanding businesses which are looking to change their legal form to allow greater asset protection for the owners or greater freedom to expand, for instance by changing from a sole trader to a trust or company.


Business owners well-advised to formulate a transition plan

The short-term demands of running a business often distract business owners from the long-term importance of developing a comprehensive transition plan. This includes proper planning for protecting and preserving the future of their business.

For business owners, the goal of preserving wealth is not enough. Business owners must prepare their businesses for the legal and financial aftermath of their retirement or death. If they do not, they are exposing their families to increased tax liabilities and their businesses to undesired acquisitions, disputes of business ownership and/or failure.

Transition planning should begin as early as possible. According to the Small Business Administration, some transition consultants recommend a three- to five-year plan, while still others counsel owners to create a 10- to 15-year plan. By allowing sufficient time for planning, business owners can evaluate potential successors in various roles and determine whether these individuals have the commitment, maturity and drive necessary to succeed.

Owners should consider the following when preparing the plan:

  • Can the business be transferred?
  • To whom should the business be transferred?
  • When should the business be transferred?
  • How should the business be transferred?

To ensure continuity, business owners must have a well-thought-out plan that considers taxes and insurance.

Owners can consider timing the transfer of a business during their lifetime. This option allows the opportunity to consult with the successor—and may help reduce the risk of a discounted sale of the business. In addition to starting early and communicating openly and clearly about the transition plan, business owners should seek professional support. They should involve a strong professional advisory team consisting of an attorney, a certified public accountant and a banker. This team can provide the business owner with information about the various transfer options that exist, including:

  1. Gift of the business to:
  • Family limited partnership or LLC; or Delaware Directed Trusts.
  1. Sale to third party options, which can entail:
  • Outright sale;
  • Installment sales;
  • Sale to defective trust;
  • Self-canceling installment notes; and
  • Sale in exchange for private annuity.
  1. Sale to employee, which may involve:
  • Outright sale;
  • Installment sale; or
  • Employee stock ownership plans.
  1. Sale to co-owner. These agreements are often called buy-sell and are triggered by certain events such as death, disability, divorce or retirement. They include:
  • Cross-purchase agreement (with or without escrow or trust);
  • Entity purchase plan; and
  • Hybrid (wait and see) approach.

Role of insurance

Another option for owners is to have a potential successor in mind to operate the business should they become unable to do so. If the business has one or more co-owners, a buy-sell agreement is a consideration. This agreement states that upon the death of any owner, their interest is automatically purchased by the other owners. This arrangement can ensure that beneficiaries of the deceased owner (including spouses or other family members) don’t unintentionally become owners. Key person life insurance can be purchased as a way to fund a buy-sell agreement and provide the necessary liquidity.

In the event a business owner dies, key person insurance provides a tax-free death benefit. This helps businesses fund the recruitment, hiring and training of a new key executive, as well as remain solvent during the transition to new leadership.

Key person insurance assures customers and creditors of business continuity. The corporation purchases the insurance policy on the key employee’s life, becoming the owner, beneficiary and payer of premiums. After the death of the employee, the corporation receives the total death benefit, tax free.

Long-term care insurance can also protect a business owner’s assets when the owner can no longer be independent. This type of insurance may be less costly for a business owner under a group discount plan than when purchased individually. Purchasing this coverage through the corporation may bring a significant tax advantage.

Estate planning

Planning for taxes is also an essential part of any strategy as estate taxes are among the steepest and most severe taxes levied. In 2017, the federal tax rate on estates is 40 percent after the lifetime exclusion of $5.49 million for an individual and $10.98 million for a married couple.

Trusts are often effective vehicles that allow you to reduce the value of your taxable estate and save tax dollars. Some options include but are not limited to the following:

  • Irrevocable life insurance trust;
  • Grantor retained annuity trust or grantor retained unitrust; and
  • Charitable remainder trusts.

No single option exists to transfer the control of your assets or to help minimize the tax burden on an estate. Trust officers, financial planners, attorneys, accountants and insurance agents with many years of estate planning experience should work as a team to help you develop a plan that fits your family’s future needs and your wishes.

When it comes to estate planning, Benjamin Franklin’s adage “nothing is certain except death and taxes” couldn’t be more appropriate. Business owners who establish a comprehensive estate plan not only secure their wealth and the wealth of their heirs, they also secure the legacy and future of the businesses they have worked so hard to establish.

James Barger is president of KeyBank’s Rochester Market. He may be reached by phone at (585) 238-4121 or email at james_r_barger@keybank.com.