Business succession planning

Every business changes hands eventually. The only variable is whether it happens on terms the owner chose. Succession planning is deciding in advance who takes over, how they pay for it, what the outgoing owner lives on, and what happens to everyone not taking over.

The plan is not an insurance document. It is a package: a written agreement setting out the transfer, an agreed valuation basis, a tax and ownership structure that survives the transaction, a funding path for the successor, and a timetable. Lawyers and accountants build most of it. Insurance contributes money on a date nobody chose — precisely the date the rest of the plan cannot cope with.

That is where most plans are weak. Succession planning usually assumes an orderly handover over five or ten years, with the successor gradually buying in and the owner gradually stepping back. It works until the owner dies at 58, or has a stroke. At that point the plan needs immediate liquidity — to pay out an estate, to equalise siblings, or to buy in a successor who has paid for only a third of their shares. Insurance is where that liquidity comes from.

The version that carries the most value, and the most family damage when it goes wrong, is the farm. A farming couple in their sixties own the land, the stock and the plant, and have three adult children. One has worked on the farm for fifteen years on low wages, expecting to take it over. The other two have careers elsewhere. The parents want to be fair to all three, and they want the farm to keep operating as a farm.

The arithmetic does not co-operate. Farm land is worth a great deal and returns modest income on that capital. A farm divided three ways is usually not a viable business, and a successor who buys out two siblings at market value takes on debt the farm cannot service. The ordinary choices are: divide the farm and lose it, load the successor with unpayable debt, treat the other children unequally, or find another source of value for them.

Life cover on the parents is very often that other source. The policy pays into the estate, the non-farming children receive the proceeds, and the farm passes to the successor intact — usually at a small fraction of the land value it protects.

What a succession plan should contain

1. 1A written statement of intention — who takes over, over what period, and what the owner lives on.
2. 2A valuation basis agreed in advance, and a review cycle for it.
3. 3A legal agreement binding the parties, plus wills and trust deeds that do not contradict it.
4. 4A tax and ownership structure signed off by a chartered accountant before anything is transferred.
5. 5A funding path for the successor: borrowing, vendor finance, an earn-out, or a combination.
6. 6Insurance sized to the shortfall if death, illness or permanent disablement interrupts the plan.
7. 7A date in the diary to review it every year, with the accounts.

The disability case

Most succession plans deal with death and stop. Permanent disablement is harder: the owner is still alive, still needs an income, may still be a shareholder or trustee, and the business has lost its leadership without the clean legal break death provides. Trauma and TPD cover written into the plan funds an early transfer rather than years of drift.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• Whether the wills, the trust deeds and the succession agreement say the same thing. Contradictions are common and are resolved by lawyers at the family’s expense.
• Whether the successor has been told, in words, what they are getting and when. Assumed inheritances cause more grief than unequal ones.
• Whether the cover is level to a late enough age. Stepped cover for estate equalisation often gets cancelled in the owner’s seventies, exactly when it becomes relevant.
• Whether relationship property claims have been considered — a successor’s separation can put a farm back on the market.
• Whether the plan survives the owner becoming incapacitated rather than dying, including who signs for them.
• Whether the sums insured have been reviewed against current land or business values.

Every New Zealand insurer writes succession funding cover to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• Cover held into a person’s eighties needs a different premium structure and insurer shortlist from cover meant to last ten years.
• Older and rural applicants face different underwriting realities — an adviser knows which insurers are currently comfortable with both.
• Where one parent is uninsurable, an adviser can restructure the plan around the insurable life rather than abandoning it.
• An adviser can work with your lawyer and accountant so the policy ownership, the will and the agreement point the same way.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.