Financial Planning - Investment

By: Lyfords  05-Apr-2012
Keywords: Insurance, Financial Planning, Income Protection

What an insurance review for shareholder employees means (author Alison Renfrew)
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
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.

What you should expect to receive from a business risk adviser
  •   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.

After a 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 insurance benefit.
$250,000 more life insurance.

End result:  $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.

Recent case #3
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 deductible expense.

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.

The client had the wrong income protection policy.  Any dividend income would have been offset against a benefit.

The information in this article was current at 27 Mar 2012

Keywords: Financial Planning, Income Protection, Independent Research, Insurance

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