PKF Australia

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Business Insurance

Business Insurance

Key Person

Every business has crucial employees or associates upon which the prosperity and very survival of your organisation depends. Regardless of the business systems you have in place, there's often at least one person in your organisation whose unexpected departure would result in an immediate, irrevocable loss of corporate knowledge, ideas, expertise, clients, sales or capital.

Without that Key Person’s presence and influence, your business would be adversely affected in a number of ways, such as:

  • Business profitability
  • Momentum
  • Efficient management
  • Goodwill and credit standing with suppliers
  • Expense of locating and training a suitable successor
  • Disruption to team and income while sourcing a replacement.

This insurance is taken out by the business on the life of a Key Person to an amount that's sufficient to offset the estimated loss to the business of that person’s death, disablement, critical illness or early retirement. It can comprise Death, Total & Permanent Disablement (Own occupation) and Trauma/Critical Illness covers.


Most businesses use debt to seed and grow their operations. This debt is often secured against Directors' homes or personal guarantees. If death, injury or trauma were to strike you or another Key Person in the business, this insurance payment could be used to repay debts and protect any personal or business assets used as loan security.


Many businesses have no, or minimal, contingency management in place so in the event of the unexpected death of a business owner an otherwise successful business can die too.

While business owners are alive they may negotiate a buy-out among themselves, for example, on an owner’s retirement. However, in the event of sudden death the remaining owners must negotiate with the deceased owner’s legal representative who may be more concerned about the needs of the estate than the needs of the business.

Many business owners mistakenly believe that this contingency has been catered for in the organisation's constitutional documentation. However, there is often no buy-out provision or, where there is, it’s often ineffectually drawn up and inadequately funded. Similar issues arise when an owner is disabled and can't (or no longer wants to) be involved in the business.

Ownership protection can provide the continuing owners or their nominees with sufficient cash for the transfer of the outgoing owner’s equity to the continuing owners, should a business owner die, become disabled or suffer a critical illness.


A drop in revenue is inevitable when a key person departs. If there isn’t a suitable replacement within the business it may be a costly and time-consuming process to find and train a successor. Other losses that may occur, for example, may be demand that can’t be met, errors of judgment by a less experienced replacement or reduced productivity through low employee morale.

Revenue protection can provide your business with cash to compensate for the loss of revenue and costs of replacing a key employee or business owner should they die, become disabled or depart unexpectedly.

Shareholders Agreements

A shareholders agreement is a critical component of a business succession plan. It allows shareholders to exercise their rights associated with shares and allows for a smooth transition to occur when a shareholder exits the business. It provides clarity around:

  • Exit strategies for key people/owners
  • Ownership entities
  • Extinguishment of personal/directors' guarantees
  • Buy/sell agreements
  • Valuation
  • Funding mechanisms and time frames
  • Areas that are not dealt with in the organisation's Constitution.

Buy/Sell Agreements

These contracts between business partners document arrangements for specific events, also known as trigger events, such as retirement, resignation, illness, disablement, default or death. Key elements include:

  • The agreement is often linked to an equity holder’s insurance
  • The insurance policies provide surviving equity holders with the necessary funding to purchase the deceased/disabled equity holder's interest
  • The agreement takes into consideration the business structure and ownership i.e. individual, partnership, family trust or company
  • They involve an agreed valuation methodology.


A Buy/Sell Agreement states how the financial value of a business will be determined and there is a range of methodologies that may be used:

  • Book value
  • Agreed value
  • Industry ‘rule of thumb’
  • Capitalisation of maintainable earnings.

You'll need legal and tax advice to choose the most suitable methodology. PKF Wealth will work with your trusted advisors to ensure an effective valuation is in place and manages the entire process for you.

Trigger Events

These are events that can impact business both for you and your business partners and can include:

  • Retirement
  • Resignation
  • Serious illness
  • Default
  • Disablement
  • Death

PKF Wealth can ensure that thorough preparation and planning is in place for you and your business partners for such an event. We'll help you to ensure streamlined business succession and to avoid financial setbacks.

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