Understanding Business Insurance

Can your business survive your business partner leaving?

There are a number of reasons why a business owner may leave a business. Some reasons, such as retirement, may be planned events that the other business owners can prepare for, often years in advance.

However, unfortunate events such as death or disablement may happen unexpectedly. The fallout from such unfortunate events can place great emotional and financial stress on the family of the affected partner, as well as the other business partners.

Business succession agreements

A business succession agreement is a contract between individuals and / or entities, all of whom have an interest in a business, which details:

  • What circumstances will trigger an  ownership interest to be sold to the other owners
  • How the shares and other interests that are being disposed of will be allocated among the remaining owners
  • How the value of the business will be determined
  • How the consideration payable to the departing owner will be funded

Buy / Sell agreements

A buy/sell agreement can be used to cover the situation where an owner dies, becomes totally and permanently disabled, or suffers a major illness and is forced to leave the business.

These succession, or trigger events are commonly referred to as insurable events.

Buy / Sell agreements are typically funded through the use of insurance policies.

The following are some real problems that could arise:

  • The outgoing proprietor (or in the case of death – his / her estate) may make demands for the business to be wound up or for their interest in the business to be paid out
  • In the case of death, the estate of the deceased proprietor may insist on immediate and direct involvement in the control and operation of the business, but may not have the relevant training, experience or expertise.
  • In the case of death, the estate of the deceased proprietor may be forced by circumstances to sell his or her interest in the business to an outside buyer for an amount lower than its true value

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Key Person Insurance

When looking to protect the financial stability of a business upon the death or disability of an important employee or owner, key person insurance can be a valuable tool.

The term “Key person” refers to an employee or some other individual whose contribution to the success of the business is significant. In the absence of such an individual, the business profitability would be seriously affected. In short, the purpose of key person cover is to make sure that the business is not unduly financially affected by the unforeseen death or disability of a key person in the business.

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How can a financial adviser help?

For information on how to best structure insurance for your business – and any resultant taxation implications – it is highly recommended you speak with us and a Risk Insurance Specialist at ALEA Insurance.


The information contained on this website is for general information only and should not be relied upon unless you first discuss your circumstances with a Licenced Financial Planner.

The Authorised Representative of Alea Insurance Pty Ltd ACN 107 647 192 is Steve Wilson (AFSL No: 331367) who is licensed by ClearView Financial Advice Pty Ltd ACN 133 593 012.