Life insurance for small business owners

The value locked in a small business is real to its owner and often illiquid to everyone else. It is worth what someone will pay for it, and what they will pay depends heavily on whether you are still there. A trade business built on the owner’s relationships, a consultancy with one qualified principal, a practice with the owner’s name on the door — none of these survive their founder intact, and the family that inherits them frequently discovers there is no buyer.

That means the family’s security cannot be assumed from the business’s value. Personal life cover, sized as if the business were worth nothing, is the honest starting point. Anything realised from a sale later is upside.

Then there is the business’s own set of exposures. Debt with a personal guarantee attached, which follows you into your estate and reaches the family home. Revenue that depends on one or two people. Co-owners who would find themselves in partnership with a grieving spouse who has no interest in the business and every interest in being paid out. Each of those has a specific cover designed for it, and each is written and owned differently.

The personal guarantee is the one people forget

Bank lending to a New Zealand small business is routinely supported by a personal guarantee, and often by a mortgage over the owner’s home. If the business fails after the owner dies, the guarantee is a claim against the estate. Families discover this at the worst possible moment. Cover sized to the guaranteed facility — not the current drawn balance, the facility — closes it.

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

• The full extent of any personal guarantees, including facilities you signed years ago and have not looked at since.
• Whether the shareholders’ agreement sets a valuation method, and whether the sum insured matches it.
• Whether the business or the individual owns each policy, and what that means for deductibility and for the tax on proceeds.
• Whether key person cover is sized to lost gross profit, the cost of recruiting a replacement, or both.
• Whether business expenses cover exists for the months an owner is off work but the business is still running.
• Whether cover needs to be reviewed after growth — a sum insured set at start-up is rarely right five years on.

Every New Zealand insurer writes business and personal risk 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.

• Separating the personal plan from the business plan so neither is doing the other’s job badly.
• Sizing key person and buy-sell cover against real numbers from the accounts rather than a round figure.
• Coordinating with your accountant and lawyer so ownership, the shareholders’ agreement and the tax treatment all line up.
• Reviewing cover as the business changes, since the exposures move faster than a personal plan does.

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.