Don’t risk your business on your health
23 February 2023
If an unforeseen health event occurs, it is the responsibility of business owners to ensure business partners, colleagues and their families are financially considered. Having a comprehensive insurance strategy can help protect the wealth and livelihoods of those who depend on you most. To paint a vivid picture of how our specialist risk advisers can help your business, we have provided a scenario.
With a highly successful business over many years, an owner of a wholesale food distribution business was able to purchase significant other businesses and lifestyle assets. Additionally they were able to invest in other businesses where he provided corporate advisory assistance. The food distribution business was strong and robust and certainly could be sold in the open market should the owner pass away prematurely.
Most of the assets of the business are owned by the family trust, making the corporate trustee responsible for significant debt levels and potential cash flow requirements. However, the business had significant orders each month with 90-day payment terms that were personally guaranteed by the owner in his personal name. Meaning, if the owner were to pass away then the business would likely be moved to ‘Cash on Delivery” (COD) by their suppliers.
Like most businesses, for many months of the year, there simply was not enough cash readily available to meet the demand. Even a great business could suffer from a liquidity event almost immediately if the business was moved to COD.
The business owner, in his role as director of the corporate trustee of the family trust, and his accountant were concerned that if the business owner were to pass away prematurely, the family trust would not have sufficient cash available to meet various business demands and its debt obligations or cash needs of the other investments it had made.
Which is where Findex were engaged to provide the family trust with the strategic underwriting and product placement advice for a Key Person Revenue personal life insurance policy on the business owner’s life.
The policy itself would be owned by the family trust, with the business owner as a natural “life insured.” If the owner was to pass away prematurely, the proceeds of the policy would be paid to the trust, giving it the capital to meet any of its ongoing needs. This provides the family trust with capital that can be deployed to help with the business to move to "COD", meet its varied debt repayment obligations, pay down debt, or provide beneficiaries with access to capital.