There are almost 2 million small businesses in Australia, employing over 3 million people. Many business owners believe they will take over the business if their partners or co-directors retire or leave the business.

Regretfully, most of these businesses never set a contingency plan in the event of an owner being physically unable to work in the business due to illness, injury or death.

In order to fund an easy transition for an owner to leave the business due to illness, injury or death, and for the remaining owner(s) to continue to manage the business, it is worthwhile to consider life insurance (term life, trauma and TPD).

Once life insurance is accepted as the funding medium for an owner departing a business due to illness, injury or death, it is vital for the owners to enter into a written buy-sell agreement, setting out what they are to do with their respective interests.

 Traditional buy-sell agreements have been primarily concerned with the transfer of business equity between owners. However, it is increasingly common for agreements to also deal with liability issues (debt reduction, guarantor protection and key person insurance). These are usually known as business succession agreements.

The most important issues surrounding buy-sell insurance are: valuation of the business (and of each owner’s share); policy ownership and taxation issues (with regard to premiums, proceeds and transfer of ownership); and the buy-sell agreement.