There is a great article written by SmartCompany.com.au on a tragic story of a successful business, whose director died, and as a result, the company has been placed into administration.

Not many people know, but if a director has personal guarantees on a loan, the financiers have a clause in the majority of contracts that if that director dies, they will call on the full amount of that loan immediately!

As you would agree, this is the worst time that this could happen for several reasons:

1. Staff morale would be low due to employment uncertainty (Eg; What’s going to happen now that the boss has died?)

2. Creditors withdraw due to the unkown (Eg; How are they going to pay the accounts now that the decision maker is gone?)

3. The estate from the deceased director comes calling - It’s the estate lawyers job to get as much out of the estate as possible for the surviving partners, so loans need to be paid, accounts tidied up, shares in the business attributed to the spouse or relevant party. (This is why a Buy/Sell Agreement is so vital alongside a structured Keyman insurance policy)

So have a think about what could potentially happen to your business and the value of it if the unknown were to happen. If you wanted it to be sold at time of death for your family’s sake, do you think that a worthy buyer would purchase it with the above mentioned points outstanding?

of course not! They would smell a ‘Fire Sale’ in an instant and the surviving spouse, who doesn’t particularly want anything to do with the business due to grief or ability, would just want it sold and pocket the money.

In that event, the remaining business partners will be left with a forced sale, or a partner who they never wanted in the first place.

All this can be avoided by a simple Keyman insurance policy being in place. Otherwise known as ‘Life Insurance’ for the business. you can Email me or call me on 1800 989 657 to discuss how easy it is to start the cover, and we’ll even shop it around with a range of insurers for you.

For something that is rather insignificant to set up, can save you from something catastrophic to your business and the impact on your family in the process.

Paul Davies

It seems that people who are healthy are more likely to have higher incomes and better job prospects, according to a report.
The AMP.NATSEM report “Healthy, Wealthy and Wise?” found people who were unhealthy earned less than half of the average income of healthy people. The unhealthy also had poor participation in the workforce, with one in every two unhealthy working-age people not working, compared to one in five working-aged people who had good health. So, it definitely shows that being healthy will increase your overall lifestyle.

Surprisingly, unhealthy workers were more likely to be in casual work rather than full-time positions, meaning most lost access to the sick pay benefits that full-time workers had. These are also the people who would probably need it most aswell.

The average income of healthy people rose from $41,000 in 2001/02 to $54,000 in 2006/07 while those with “persistent poor health” found their incomes fell from $24,000 to $22,000 in the same period.

Investing time and effort in good health is worth the effort in terms of having a job and a good income. Staying fit and healthy generally requires strong discipline in terms of eating habits and exercise. Also applying that same discipline to money management will provide financial benefits down the track. It’s a ‘lifestyle’ decision.

Contrast to our physical health, being a ‘Fat’ nation, the report found Australians were in good financial shape, experiencing the fourth highest level of quality of life in the world, but many were unprepared for life-changing circumstances such as unexpected illness or injury.

Could you afford to pay the rent, a mortgage, personal loans, food bills or school fees with weeks or months without an income, or even with a reduced income if you couldn’t work? Many people would not.

A report by Dunn & Bradstreet found four out of 10 Australians, could only last for up to one month if they lost their job. This is concerning, considering that only 1 in 5 Australians have some form of income protection insurance in place to combat this. Premiums are affordable & tax deductible, so it’s not a large committment to protect yourself from the unknown.

A fact is that 1 in 3 people will have 3 months off in their working life. Would you be able to survive?

Some simple steps to safeguarding yourself if you got into this situation are:

*GETTING rid of debts in the right order, such as non-deductable debts and high interest bearing debts such as credit cards;

* MAKING sure all insurances, including income protection, were adequate and up-to-date; and

* NOT spending more than you earn.

For more information and quotes on Income Protection insurance, visit www.protectmywealth.com.au

PD

Running your own company can be a risky business, and insurance is a great way to transfer the financial burden of these risks to someone else. Not only is this financially sound, but it will also help you sleep easily at night, knowing that you are covered.

As your business grows, it is important that you keep your insurance up to date. Using a specialist small business insurance broker will help keep your premiums down.

Types of insurance
The most common types of insurance are the following:

• Building and contents insurance (including fire and flood);
• Public liability insurance;
• Product liability insurance;
• Equipment insurance (including protection against IT failures);
• Legal expenses insurance for facing court proceedings;
• Health and life insurance for the owner;
• Key man insurance;
• Income protection insurance;
• Business interruption insurance;
• Transit insurance for goods;
• Travel insurance for business trips;
• Credit insurance for unpaid debts;
• Industrial special risk (ISR) insurance; and,
• Workers’ compensation.

We’ll look at some of these types of insurance in more detail:

Public liability insurance
This covers legal liability for injury to members of the public and damage to property arising from the business’s activities. It also covers economic loss arising from your negligence. Your liability from a successful public liability claim could be enormous and threaten your company’s survival and, if you are a sole trader, your personal finances and assets. This is one of the most essential types of insurance for any small business.

Equipment insurance (including protecting against IT failures)
This covers loss or damage to machinery or equipment as a result of a breakdown. You can also insure against the loss of food due to spoilage following a breakdown.

Key man insurance
The most important asset of a small business is the owner, and key man insurance (it is also sometimes known as the sexist key person insurance) protects the company (not the owner) from the loss of a key person within the business and the impact of this upon profitability.

In partnerships, key man insurance protects each partner. Upon the death of a firm’s partner the other partner(s) usually need to purchase the shares of the business from the deceased’s family. Insurance lets this be handled smoothly with the correct buy-sell agreements in place.

Income protection insurance
If someone is unable to work, income protection insurance protects them by paying their salaries.

Many business partnerships make it part of the partnership agreement that all the partners have income protection insurance. This is because the partners share the firm’s profits, and having income protection insurance in place for a partner who is unable to work means that profits are not diluted by the non-working partner drawing a salary from the business.

Business interruption insurance
This provides cover for loss of income, payroll and an increase in costs following a reduction in turnover or revenue caused by fire damage.

Workers’ compensation
Businesses with staff also need to register with Work Cover, statutory and state-based authorities that govern workers’ compensation.

If you are at home between the hours of 9 and 4, and you are tuned in to any television channel imaginable, then chances are that you will come across a message from one of the televangelist informercials relating to life insurance who seem about as sincere as Brittney Spears marital vows.

These ads generally promote that you can get life insurance for as little as $4 a week or something similar. However, what they don’t tell you is that the policy you can receive with someone else is far superior and less expensive simply by calling a regular life insurance company or an adviser.

When calling in response to one of these infomercials, you are still required to give medical details, unless ou are after a Funeral Plan (whose premiums are almost DOUBLE that of normal policies for that value).

So, here are the three reasons to beware of television life insurance offers:

1) The premiums charged almost 40% higher than normal policies

2) There are many exclusions such as conditions you have suffered in the last 2 years.

3) No advice offered

So, if you do feel the urge to contact these insurers after watching one of their promotional spots on daytime television, be sure to check with your adviser or do some more research.

PD

Whole of Life, or Endowment policies, as they were known, used to be offered in Australia up until about 5 years ago when the previous government changed regulations pertaining to the taxation of these types of products.

The main tax concession available with these policies were If no withdrawals are made in the first ten years you do not have to pay income tax on the investment gains of the plan. If withdrawals are made during the 8th or 9th year a tax rebate may be available. But on a sliding scale.

If you currently hold an ‘Endowment’ or ‘Whole of Life’ policy, you may find some answers in this AMP Fact Sheet for their old funds. But still the fact remains that you can’t apply for new policies anymore. One main reason would be that fund managers weren’t making enough money on them either. Fancy that.

If you have a Whole of Life policy, you may want to consider talking to someone about whether it is still suitable for you or not. These policies have two parts to them.

1) A Life Insurance component - A premium is paid for a small amount of life insurance in the fund.

2) A savings component - Part of the money you put in goes towards the savings portion of your policy.

For example, if you pay $50 month toward your policy and possibly $30 of that will go to pay for the life insurance. In the beginning it may only have been $5 or $10, but as you get older, the premiums increase an that eats into the savings component of your fund.

This is why I get so many people asking me why they only have a small amount of money to cash in at the end of the policy when they’ve been paying into it for over 10 or 20 years. Sometimes, the best option is to look at premiums the other companies are offering, (who also have better benefits that the original policy you may have) and put the savings component into super, your mortgage, or even a savings account.

PD

We all know the importance on insurance and the implications of what would happen if something serious was to happen to our health and well being. But many of us dont have a revelation of what the actual impact of such a major trauma would be.

This video is a real life story of a successful chiropractor who’s working life was cut short due to a terrible incident. This proves that ‘you never know’.

Do you have a similar story to share?

PD

Do you earn under $60,342? If so, you may be eligible for FREE MONEY from the government. No, Kevin hasn’t lost his mind again. You may have heard of the government’s co-contribution scheme to bolster super accounts so that we all don’t look forward to living off welfare till our average age reaches 123.

Basically, if you are earning less than $60,342 and contribute after tax monies to a superannuation fund, the government will give you $1.50 for every dollar you contribute. This is based on a sliding scale, phasing out to $0 after $60,342. To see how much you would receive into your super, HERE is the ATO Calculator.

Some people have said, ‘why would I want to put more money into super when it’s going backwards?’. It’s a fair comment, but remember, based on the calculator, you WILL receive 150% return for all after-tax money you put in to your super. Plus whatever your current super fund is (or isn’t) earning in interest. That’s a pretty good investment.

I posted another part to this story at ‘Have the government pay your insurance for you’ where you can link your life insurance and income protection/sickness & accident insurance to your super and the co-contribution covers the additional cost of your insurance.

You have just under two months to arrange something as it looks like KRudd is about to hand down a killer budget which will possibly scrap the co-contribution scheme. I suppose it’s only natural to kill off something that encourages ’saving’.

PD

The two names generally mean the same thing, but when you are ’shopping around’ for insurance that will cover you if you are unable to work, you may be in for some surprises if you take the wrong one. I’ll outline as simple as possible the differences to save you the dramas at claim time.

There are two different industries: Life Insurance & General Insurance. The easiest way to differentiate them is that General Insurers (GI’s) usually offer home & contents or public liability in their range of products. This isn’t always the rule because some insurers sit on both sides of the fence, but you’ll get the jist as this post goes on.

An Income Protection (IP) policy is offered through a Life Insurer, and a Sickness & Accident (S&A) Insurer is offered by a General Insurer. S&A insurance a ‘yearly renewable’ cotract. This means that the insurer renews your policy on a yearly basis, as long as you still fall into their required guidelines. If not, they reserve the righ to cancel your policy.

An IP policy through a life insurer is a ‘guaranteed renewable’ contract, which means the insurer guarantees that they will reinsure you every year, as long as you keep paying the premium of course.

So, at face value based on this fact alone, it is more beneficial to take out an Income Protection policy instead of a Sickness & Accident policy. The other main concern when insured with a General Insurer through a S&A contract is that your premium is not guaranteed each year. Usually, your premium increases as you get older, due to statistics saying that you are more likely to have a claim. But a S&A policy will increase even further if the insurers pricing managers decide they need to cover their ‘rears’ a bit more this year. I’ve had people who have come to us after getting a 25% increase!

And lastly, at claim time, which is the all important reason you are taking this out in the first place, the S&A contracts state that you must be ‘unable to perform ALL of your income producing duties’ to make a claim. IP policies state mostly that you be ‘unable to perform ONE of your income producing duties’ to receive a full claim. And you can even go back to work part time and get some form of benefit form your policy.

Why would anyone get a S&A policy? Because they aren’t told at time of application. Usually, you just ring up one of the big companies and they do it all over the phone without any checks or paperwork. This is reason for concern in itself. So, buyer beware! For more information and professional advice, visit www.protectmywealth.com.au

PD

A question that is on many lips lately with the global meltdown and large institutions in the US falling apart faster than Michael Jackson’s nose. Many of the other large institutions are looking frighteningly similar to Jacko aswell.

Unlike our American countrparts, we are governed by a defined set of laws in Australia through the likes of ASIC (Australian Securites & Investment Commission) and APRA (Australian Prudential Regulatory Authority). You may have heard of these two organisations. The easy way to explain what they do is; APRA looks after all the big organisations such as banks and insurers to ensure they are doing the right thing with their money. ASIC overseas all of the institutions and individuals who are giving advice to others, such as financial planners, company secretary’s, etc.

Considering they are government organisations, they have had their fair share of stuff ups in the past, but overall they do a pretty good job of keeping the mongrels honest. APRA has a set of rules for insurers especially. They MUST have a mimimum of 30% of their insurance policies in cash held at any one time. This is in case something catasrophic goes wrong and the fan gets dirty.

There have only been a handful of times that insurers didn’t meet these requirements, and because APRA has quite a stringent hold on that requirement, the insurer responsible was required to stop trading until theu sorted themselves out and had the required funds in their account.

Australia has some tough laws pertaining to the minimum standards for insurers, but these dont apply to ‘General Insurers’ because they have such a large turnover of claims, it’s quite hard to manage that type of capital. general insurers are easily identified by offering car insurance, Public liability, etc. But that’ for another time. I hope that helps.

PD

I’ve been asked by many clients and those outside of the industry about AIG, and their ability to service their current insurance book. Due to all the bad press they have received from the US and around the globe, there’s no wondering why.

We have dealt with AIG for many years now, and we have been notified that their balance sheets are in order, and must be according to the Australian Securities and Investment Commission (I’ll talk about this later in another post). They are also in the process of changing their name to AIA. This is solely due to the bad PR over the recent months, and with America’s ever downward spiralling economy, there may be more to come.

AIG held an industry meeting recently in Brisbane to give a run down of the new structure which included an outline of their separation to their US parent company, forming an independent unit for the Asia/Pacific region. This should give policy holders some additional peace of mind knowing that they are doing something to combat this crisis.

Their new name and brand will be AIA. They used to trade as this, but for some reason changed to AIG many years ago. But as far as business strength goes, AIG is as good as any other.

PD