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Case Studies

IMPORTANT - Please note: The Case Studies below are fictional cases which we hope will illustrate some scenarios which may help you to understand the range of insurance advice and insurance products that we can assist you with.

They are presented in a simplified format which does not include the full range of information that we would consider essential prior to any actual recommendations. Please be aware that rarely are two client’s needs identical, and we take care to understand fully your circumstances before any advice is offered.

Warning: You should not assume that any of the scenarios below will be appropriate for you, even if they sound identical to your own situation. Please contact us to discuss your insurance needs.

Case Study - Family Protection Scenario

John, aged 36 and Mary, aged 35 have two children aged 4 and 6.
They have a $275,000 mortgage and a $15,000 car loan.
John has a $10,000 superannuation balance, Mary has $8,000.
They always keep $7,000 to $8,000 in the bank for emergency purposes.
John is employed earning $45,000 p.a. and Mary works part time earning $15,000 p.a.

Monthly, from their combined after tax income of $4275 they pay $1870 mortgage, $330 car payment and $1800 on all other household bills.

If John died they would want to pay out all loans. Mary would continue to work part time for another 10 years until their younger child is 14, then seek full time work where she would expect to earn $30,000 p.a., which would provide her with $2200 per month after tax.

Calculations for Life Insurance for John  (See Notes (3) below)

Pay out mortgage and car loan - $290,000
Pay medical, funeral, tax and legal bills - $50,000
Replace income shortfall for 10 years - $80,000 (1)
Education fund for children -   $50,000
Upgrade family car in 5 years time  $20,000
Total   $490,000
Less John’s superannuation payout  $10,000
Life Insurance recommendation $480,000 (2) (3)

(1) With the mortgage and car loans paid, only $1800 per month is needed. Mary’s income from part time work provides $1135 monthly after tax, leaving a shortfall of $665. Mary’s income, however, when working full time would support the family.
(2) For the purposes of this Scenario, inflation and interest earnings have been ignored, but in a real life situation, there would be some adjustments to the calculated figures.
(3) Life Insurance alone for John would not protect the family from potential financial hardship. Life insurance for Mary would also be recommended, as her death or disablement would obviously impact significantly on family finances. Total and Permanent Disability, Trauma Insurance and Income Protection cover typically would also be considered for both partners, and certainly discussed, before making any personal recommendations.

Case Study - Business Partnership Protection Scenario

Max, Rob, Harry and Jim have purchased a business for $600,000. They each have a 25% ownership. Both Max and Rob have each obtained their $150,000 by borrowing against their homes. Harry had the cash available and Jim borrowed the money from his parents.
They expect the business to be worth $800,000 within 3 years, and want to protect each other's investment so that the death or serious disablement of any one of them would not create a financial crisis for the other partners.

They have a solicitor draw up a Binding Buy/Sell Agreement, where should any one of the partners die or suffer a serious disability, they must sell their share of the business equally among the other partners. The payment for this mandatory sale, the Buyout funds, is to be provided 100% by an insurance policy on each of the partners, which would be claimed at the time of the death/disability. The beneficiary of the Buyout funds would be nominated in the policy by each of the partners and would be paid direct to their spouse, or a family member or to their Estate for distribution by the executor of their Will.

If one of the partners dies, their beneficiaries receive the Buyout funds. If the “retiring” partner is seriously disabled, he receives the Buyout funds. The remaining business partners now each own a third of the business and the “retiring” partner or his heirs and successors own none of it. Because the Buyout funds were all paid by the insurance company, the remaining partners were not forced to try to borrow these funds from a financial institution or from their own personal resources to pay out the “retiring” partner's interest. They also do not have to contend with the potential involvement of a deceased's spouse in the business if they couldn't afford to buy out the retiring partner's share.

In the above Scenario, a Recovery Package which includes Life Insurance, Total and Permanent Disability and Trauma cover for $200,000 is taken out on each partner ($800,000 divided by 4). The partners all agree that the business will pay for the legal fees and for the insurance premiums. Max and Rob nominate their spouses on their policies as beneficiaries. Harry and Jim, who are single, nominate “to be paid to Estate” in their policies. Jim bequeaths $150,000 to his parents in his Will to repay the money they loaned him.

Case Study – Sole Trader or Tradesman Scenario

Gary owns and operates his own business. He is single with no dependents.
Gary's business income is $120,000 p.a. He has no employees.
He pays $48,000 p.a. in business expenses, leaving $72,000.
He pays himself $66,000 p.a. and contributes $6,000 p.a. into a super fund.

Gary has a $250,000 mortgage on his home and he owes $20,000 on his vehicle. He often has a $5,000 credit card bill. He has $8,000 in his personal bank account. He has a balance of $30,000 in his superannuation.
Monthly, Gary's after tax income is $4362. Out of this he pays $1640 for his mortgage and $420 in vehicle payments. All his other monthly living expenses total $2000 per month.

Gary's mate Jack fell down a flight of stairs 6 months ago, badly damaged his back and hasn't been able to work since. He's now lost his house, the finance company has just repossessed his car and Jack finds living on Centrelink benefits very hard. He's not sure how he'll go when he tries going back to work again. Jack's wife, Jill, has started work attempting to earn enough to support the family, but they are struggling to pay the rent and feed themselves and their 2 children.

Gary called us to see what we would suggest he do to prevent something similar happening to him. He did not want to consider any long term retirement funding.

We made the following recommendations for Gary –

Income Protection - $4125 per month benefit, including C.P.I. adjustments, paid to age 65, with a 30 day waiting period
Business Expenses - $2,000 per month paid for 12 months, with a 30 day waiting period for all ongoing expenses (after deducting stock purchases)
Stand Alone Recovery Package - $475,000 for Total and Permanent Disability and Trauma cover only (no Life Insurance). $275,000 is to clear his mortgage, car loan and credit card debts, plus an allowance of $200,000 for out of pocket medical costs, home or vehicle modifications, a wheelchair, etc

Case Study – Business Insurance Package Scenario

Tim and Debbie have a retail shoe shop. They are tenants in a suburban shopping centre. It would cost them about $100,000 to completely fit out the shop with new glass shelves, stock racks, counters and ancillary equipment such as cash register, fridge, furniture, stationery, etc. The cost of their usual stock holding to them is $150,000. They don't believe that burglars would be capable of stealing more than $10,000 of their stock due to its weight and bulk. They bank their cash and cheques every day, leave a float of $500 in the register overnight, and take the rest of the cash home each night. In their lease the landlord requires them to have $10 million Public Liability and to insure the landlord's plate glass at the premises. They have a neon sign outside their shop for which they paid $2500. They usually get their stock delivered from Australian suppliers, but they often pick up stock from a local warehouse and bring it to the shop in their car.

Their Business Insurance Package has the following recommended cover –

Fire and Defined Events/Accidental Damage
Contents - $100,000            Stock - $150,000                                                        
Accidental Damage – $25,000   Removal of Debris - $15,000     
Business Interruption
Gross Profit - $268,000, allowing for a 10% increase over last year 
Indemnity Period -18 months
Additional Extra Costs of Working - $30,000                                    
Claim preparation costs - $50,000

Contents - $5,000    Stock - $10,000

Business premises, business hours - $3,000       In Transit - $3,000                     
Business premises, after hours - $500                At residence - $3,000

External & Internal Glass – full replacement value                Sign - $2500

Legal Liability
Public & Products Liability - $10,000,000

$10,000 goods in transit


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