Who will pay the bills if you are no longer around or able to?
This may sound blunt but it is a harsh reality. Too many people leave their loved ones in the lurch to struggle because they procrastinated or just didn’t have things in place with life insurance. We make the process of gaining life insurance seamless for you, ensuring that you have the absolute best coverage in place. So if something unforeseen was to happen to you, your family will be taken care of and will be secure financially. For more information on all of our services continue reading below, please get in touch with any queries we are happy to help.
The term insurance refers to sudden and unforeseen events. On the other hand, you can argue that as death is inevitable to us all, it is therefore not unforeseen, but can still be sudden or premature. Assurance refers to a pledge, confirmed through a contract, to pay the amount of the policy upon the death or terminal illness of the life assured.
Life insurance pays out a lump sum to ensure that those who are financially dependent on the life assured have a measure of financial security. Most people tend to consider life cover when they marry, take out a mortgage and/or have children.
Life policies in New Zealand generally include a terminal illness extension which pays if the life assured has been diagnosed with a terminal illness.
Policies pay out small amounts early to provide funds for immediate expenses such as funerals, while coverage is usually on a worldwide basis and for all illness and accidental causes. Suicide is excluded for the first 12 months.
How much cover you need depends on your situation. A chat with one of our advisers can help you understand what level of cover you might require.
What is Critical illness cover and why do I need it?
A critical illness/trauma policy is designed to pay you a lump sum for this type of event – in fact, most policies will cover up to 40 conditions such as cancer, stroke and heart attack. They pay you a lump sum because you suffer a serious illness and survived, not because you died! The point of this kind of policy is, whilst you are receiving treatment for your condition, who is paying your mortgage? What is this doing to your savings or any equity you have in your house? Even where you have someone else bringing an income into the home, will it be enough, and what sort of impact is it having on those people? What if they have to give up their job to look after you?
Many people consider that having life insurance is enough, or don’t want to consider other options because of the cost. Consider that because life cover pays out when you die or become terminally ill, any payment may come too late. When people calculate how much life insurance they need, they rarely allow for the costs that come before death. The cover you already have may cover the old mortgage, but not the new one you just took out to get you through the previous 18 months.
Someone with specialised skills or knowledge in your business
The founder or public face of the company
The creator of unique intellectual property – software, key advisor, major account/sales person
Someone with responsibility for a significant portion of revenue/profitKey person Insurance
The death or disablement of a key person can affect a business in a number of ways:
Lost profits otherwise generated by the key person
Additional costs to secure and integrate a replacement
Loss of contracts and customers
Loss of market share as competitors “fill the void”
Ability to stay solvent, potentially breaching The Company’s Act
Ongoing stress for the remaining proprietors/staff
Loss of company value
Key person cover is designed to inject cash into the business to provide funds to secure a replacement, replace or reduce lost profits, reassure customers and creditors that the business is financially secure, and to meet contractual obligations. Without key person cover the business may be forced to wind up or face a significant reduction in its value. Statistics tell us that:
5% of businesses have to be wound up or cashed up if there is an event which affects a key employee
In a forced sale business, assets only realise approximately 35% of the owner’s perceived value.
Debt cover may have been affected on the life of the key person by the business. Once a claim has been made and debts repaid this may make funds previously used to service debt available to meet key person needs that may have arisen.
As any sole trader will be the key person in their business, their death or disability invariably means the business will not continue. In the event of premature death, it would be important to ensure sufficient funds were available to compensate dependents who needed it and in the event of a disability, income protection would be important to secure a replacement cash flow.
Key person policies are normally owned by and paid for by the company. The generally accepted view for limited companies is that the premium is tax deductible and the benefit is assessable. However, if all funds are used within the tax year of receivables for deductible expenses, no tax is payable. Each company must seek advice from their tax advisor on their specific circumstances.
Author: Gerard Tilleyshort