Business Insurance

AJM Financial Planning Pty Ltd

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Business Insurance assists businesses in continuing to operate effectively should an event arise such as the death, disablement or critical illness of a principal or key person.

By taking out adequate insurance, your business will be better equipped to deal with these unforeseen events.

The main types of Business Insurance are:

1. Key Person Insurance

A key person is someone whose loss, be this temporary or permanent, would have an adverse financial impact on a particular business. Key Person Insurance is essentially Life, Total and Permanent Disablement or Critical Illness/Trauma Cover taken out by a business on the life of a key person. Businesses can use the policy proceeds to replace lost revenue, repay debt, inject capital into the business and to find a suitable replacement or to train other staff to fill the missing key person’s position. In short key person insurance helps protect the financial stability of the business at this critical time.

2. Business Expenses Insurance

Business Expenses Insurance provides a monthly benefit that reimburses up to 100% of allowable business expenses for a period of up to two years if you are unable to work due to disability. The types of business expenses covered are:

Types of Business Expenses Covered

  • Rent for business premises;

  • Regular interest payments on business mortgages or loans;

  • Utility and telephone bills;

  • Cleaning bills;

  • Business property rates and taxes; and

  • Non-income producing employees’ salaries.

In short Business Expenses Insurance helps keep the business doors open until you are able to return to work or until the business can be sold in an orderly fashion, i.e. not under fire sale conditions.

3. Guarantor Insurance

Many businesses have significant debt exposure that can only be managed if the existing revenue of the business is maintained. If a business principal has guaranteed a business loan and provided their personal assets as security, these assets are at risk should the business be unable to repay the loan due to the death, disablement or critical illness of this person. Guarantor Insurance is essentially Life, Total and Permanent Disablement or Critical Illness/Trauma Cover taken out by a business on the life of the person guaranteeing the loan(s) to ensure that these loans would be repaid. In fact it is often prudent for business principals to have a sufficient amount of insurance to discharge all business debt, and not just their portion, in the event of their death, disablement or even critical illness.

4. Insurance to fund Buy/Sell Agreements

A Buy/Sell agreement is a business succession agreement which provides a legal mechanism by which an ownership interest in a particular business can be transferred from an outgoing owner to the continuing owner(s). There are many reasons why a business owner might leave a business however death, total and permanent disablement and critical illness are all events that can be covered by a Buy/Sell agreement. These agreements are usually funded through the use of insurance as the above trigger events are all insurable. Without a Buy/Sell agreement in place, significant problems may occur between the departing business owner (or their estate) and the surviving business owner(s) which could destabilise the business and ultimately affect its very survival.