Review for Accountants & Financial Planners
September, 2015

Buy Sell Agreements - who pays the premiums?

Two minute scenarios...

One potential "sticking point" for business insurance clients is the issue around the paying of premiums for Business Insurance.

Scenario One... Joe, Michael and Clare

Scenario: Joe, Michael and Clare have been business partners for ten years. They are considering an insurance proposal from their Adviser to support a business succession plan in the event one of them dies or suffers a TPD.

What's the issue? They want to know if the business can pay for the policies.

Solutions: The business can fund the premiums but the accounting for it needs to be considered. The clients need to understand the premiums are a personal expense, as they or their estate receives the insurance proceeds. Therefore if they want the company to fund it, company can pay FBT, or the partners can have it recorded as a distribution against their directors' loan accounts.

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Scenario Two... Joe's not happy

Scenario: Joe is 10 years older than Michael and Clare and has some health issues. His insurance premiums are double the cost of the other two.

What's the issue? Joe is not happy. Even though the adviser explains he has a different risk level, he's not sure he wants to proceed. He doesn't think it's fair.

Solutions: There are a number of options here that we present to clients. The partners can agree to each pay their own, the premiums can be pooled and they each pay a third of the total, or they can pay a proportion of their own and pool the rest.

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Scenario Three... Proceeding

Scenario: As with most of our clients, the three partners have agreed to pay a proportion of their own and pool the rest.

What's the issue? They are also taking out debt cover in the company name and ask how will this be paid.   

Solutions: This is a business expense (although still capital purpose). The business usually pays for these premiums.

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More information for clients

Please feel free to forward this insight on Buy Sell Agreements to your clients. Or if they would like to discuss how we can help them please call 03 8621 9000 or email info@irongrouplawyers.com with their details and we will contact them, obligation free.

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