What an insurance review for shareholder employees means (author
At Lyfords we
specialise in adding value to business owners. For the first 25 years in
my career I thought business owners already had strong relationships with their
advisers and I did not try to work in that market. What a mistake.
Make your adviser work for you What you should expect to receive from a
business risk adviser
Commissions paid on insurance
policies are high in New Zealand compared to other countries and are based on
the annual premium. The annual premium for basic insurance on a young
couple might be $1,800 per year ($150 per month). The annual premium for
two to three people in business together is more likely to be $18,000 per year
($1,500 per month). Key person and Buy/Sell insurance are extra benefits
business owners need to consider. The commission an insurance adviser can earn
working with business owners may be five to ten times more than working with
individuals. You need to ensure your adviser does a decent job and doesn’t
treat you as though you are a young client with basic needs. They are
being paid very well to get the insurance in place for you so it’s fair enough
that they work hard and earn your business. Business insurance is very different
to insurance for individuals.
- A needs analysis where the adviser works with
the client to ensure that the appropriate risk needs have been addressed
- A full written report based on the needs analysis
- Research that
explains why certain insurance companies have been recommended
- Premium comparisons with all the major insurance companies to assist the client
to choose the most suitable company
- Assistance with advising on
correct documentation for business agreements such as Buy/Sell agreements.
The job is only half done if agreements between the business owners are not
documented correctly. The adviser should work with a lawyer for this.
Nearly every time we review an insurance programme we find improvements can be
made; from fine tweaking to making serious changes. Change is constant.
Recent case #1:
The client had a modest insurance programme. Total
monthly cost for ACC levies and personal insurance was $294.
review they ended up with the best products available in the market. They
previously had the worst products when rated by an independent research company.
The husband had the following benefits added to his insurance programme:
$50,000 of trauma cover.
$600 per month increase to his income protection
$250,000 more life insurance.
$30 less per month to pay than they were paying prior to their review, superior
cover and increased benefits.
Recent case #2
A business owner had
$500,000 trauma cover. It was a less than average product when rated with
an independent research company.
We recommended changing to the top
product and altering the cover from a stand alone benefit to an accelerated
benefit. The purpose of the cover was for debt repayment. This made
the premiums tax deductible while the lump sum payable would not be taxable.
We saved him $204 per month by doing this (tax deductibility was a further
saving). If he had been happy to continue to pay $204 per month we would
have suggested he use that money to pay for Key Person insurance.
The business owner contacted the existing adviser enquiring about tax
deductibility of premiums. She was advised that even though the insurance
was owned by her business the premiums were not tax deductible. This is
incorrect. Business insurance taken out by a business owner is a tax
The premiums were tax deductible. The portion
of insurance for debt repayment needed to be noted separately as debt repayment
to ensure that the proceeds of a claim would not be taxable.
had the wrong income protection policy. Any dividend income would have
been offset against a benefit.