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Insurance Through Super
      

Insurance through Super

Tax-effective Insurance? It makes super sense. It can take years to build up a business. But all that hard work can be undone very quickly if you can’t work. Well, the good news us you can take the stress out of worrying about what may, or may not, happen by taking out insurance in super.

A super way to insure

As a business owner, when you purchase insurance through your super fund the contributions used to pay the premiums are generally tax deductible. This can make it cheaper to insure through super, or help you to purchase a higher level of cover.

An additional benefit of insuring through super is that your dependant beneficiaries, such as spouse or young children can now receive unlimited tax-free lump sum payment should you die. This recent tax change has removed a significant disincentive for holding larger life insurance Policies within the superannuation system.

What is a Buy Sell Agreement?

A Buy Sell agreement is a legal contract that facilitates the orderly transfer of business ownership, if certain trigger events occur such as death or disability. In the absence of such an agreement, if a business owner dies, their interest in the business is likely to be distributed in accordance with their will (eg to their surviving spouse) or be otherwise controlled by the business owner’s beneficiaries (eg if the business is owned by a family trust).

As the new part owner of the business, their spouse or beneficiary would then be entitled to the same management and financial rights as the deceased owner. But the remaining owner(s) may not be happy about admitting a new owner into the business. Or the new owner might not have the necessary skills to assist in running the business or even want to be involved.

Potential problems can also occur if an owner becomes disabled and unable to work in the business again. The purpose of a Buy Sell agreement is to enable the remaining owners to buy out the departing owner’s share of the business. Insurance is usually considered the most cost-effective and efficient way to ensure enough money is available to fund the ownership transfer, rather than using private capital or borrowed money.

What is key person insurance?

Key person insurance is an insurance policy that is taken out by a business on the life of a key person or employee. The purpose of the policy is to protect the financial position of the business by providing a lump sum payment to offset the estimated losses that would arise upon the death, TPD or critical illness of that key person.

There is, however, only one situation where key person insurance can be purchased through super. This is where it’s used for debt protection purposes in family-held proprietary limited companies, where business debts often secured by personal guarantees from the directors.

In this situation, husband and wife directors could take out life or TPD insurance in super. In the event of death, the benefit could be paid tax-free to the surviving spouse who could then lend the proceeds to the company so it can repay the debt and extinguish the personal guarantee. In the event of disability, the benefit would be paid to the insured key person, who could then lend the proceeds to the company so it can remove the personal guarantee.

        
Brian Woods & Peter Campbell, Nexus Wealth Management Pty Ltd T/A Nexus Wealth Management Authorised Representatives GWM Adviser Services Limited Australian Financial Services Licensee Register Office at 105 - 153 Miller Street North Sydney NSW 2060 Copyright © 2017 Nexus Wealth Management All Rights Reserved