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Aviva: Internal
Business Protection – Overview
Karen Gallagher
Product Director – Individual and Group Protection
Aviva: Internal
Health Trends….
Mortality Rates improving
4
Aviva: Internal
Cancer Survival Rates
Aviva: Internal
Why Protection Matters
• Increased mortality
• Increased disability
• Increasing population
• More people in employment
• Number of Start Ups increasing
• Pension and Investment Plans can fall apart if protection planning isn’t in place
Aviva: Internal
Why get involved?
• Business to business relationships – Accountants/Solicitors
• How much Executive Pension Business is being done?
• Membership of Occupational Pension Schemes – December 2016*
Scheme Size No. of Schemes Active Members
Non Group 57,666 57,666
1 to 50 9,317 60,918
51 to 99 339 23,520
100 to 500 305 62,354
501 to 1000 46 31,658
1001+ 30 63,666
2016 Total 67,703 299,782
Aviva: Internal
Why get involved?
• Business to business relationships – Accountants/Solicitors
• How much Executive Pension Business is being done?
• Membership of Occupational Pension Schemes – December 2016*
Scheme Size No. of Schemes Active Members
Non Group 57,666 57,666
1 to 50 9,317 60,918
51 to 99 339 23,520
100 to 500 305 62,354
501 to 1000 46 31,658
1001+ 30 63,666
2016 Total 67,703 299,782
*Pensions Board Annual Report 2016
Aviva: Internal
The Financial Advisor’s role
• Surprisingly low level of cover
• Who should be giving advice?
• Make a Will for your Business
• Advice first – will be valued
• Ensure you are seen as the product provider or solution expert
• Valuations of the business and legal work should be taken on by Accountants and Solicitors as
Business Owners require professional legal and tax advice to ensure any arrangement is appropriate
to their personal and corporate circumstances
Aviva: Internal
What is Business Protection?
• Protect the business
• Protect the business’s human assets
• Secure its future
• Control retained by Shareholders / Partners
• Continuity of operations
• Comfort for Shareholders / Partners & families
Aviva: Internal
Types of Business Protection
• Co-Directors’ Cover
• Individual
• Corporate
• Partnership Cover
• Key Person Cover
Aviva: Internal
Co-Directors’ Cover – Why?
Shareholders:
• Inability of the other shareholders to buy out the deceased shareholder – access to
funds/raising capital
• A new shareholder that may not want it or be capable
Next of Kin:
• Difficulties selling shares – restrictions could be in place, could be forced to take lower
value
• Cash flow if shares not sold – could give rise to Inheritance tax liabilities but with little or
no income
Aviva: Internal
Co-Directors’ Cover - Solution
• Protects the business in the event of the loss of a key shareholder
• Continuation of Business after death of Director
• Buys out Director’s interest
• Shares purchased from Director’s estate
• Surviving Directors carry on business
• Deceased Director’s estate receives value of shares
Aviva: Internal
Co-Directors’ Cover - Individual
• Personal arrangement between Directors – agree in advance what they will do in this event, legally binding
• Insured on either
• Life of Another• Own Life in Trust
• Premiums paid by Directors
• On death, sum insured buys back shares from estate
• Shares distributed amongst other Directors
• Dependants of deceased Director paid for share of business
Aviva: Internal
Co-Directors’ Cover - Individual
JTS LtdValue €3m33.33%
€1m
33.33%€1m
33.33%€1m
Aviva: Internal
Co-Directors’ Cover - Individual
Tom
€1m
Jim
€1m
Sean
€1m
€1m CoverIn Trust for
Sean & Tom
€1m CoverIn Trust forSean & Jim
€1m CoverIn Trust forJim & Tom
Aviva: Internal
Co-Directors’ Cover - Individual
Tom
Jim
Sean
Dies
€500K
€500K
Aviva: Internal
Co-Directors’ Cover - Individual
Tom
Jim
Sean’s
Estate
€500K
€500K
Aviva: Internal
Co-Directors’ Cover - Individual
JTS LtdValue €3m
50%€1.5M
50%€1.5M
Aviva: Internal
Co-Directors’ Cover - Individual
• No Tax Relief on Premiums
• Sum Insured Paid Tax Free
• Must be used to buy back shares
• Buy & Sell Agreement between Directors
• Compelling Surviving Directors to Buy Shares
• Compelling Deceased Director’s Estate to Sell Shares
• Company NOT involved
Aviva: Internal
Co-Directors’ Cover - Corporate
• Company owns Term Insurance policies
• Policy on each Director
• Life of Another
• Premiums paid by Company
• Not allowable expense
• On death, Company purchases share from estate – Contingent
Purchase agreement (Buy and Sell)
• Cancels shares• Increases shareholding of surviving Directors
Aviva: Internal
Corporate versus Individual Route
• Advantage: Cost is borne by the Company and not the individual
shareholders
• Dis-advantage: More complex in terms of taxation issues and
legal restrictions
Aviva: Internal
Co-Directors’ Cover - Corporate
JTS LtdValue €3m33.33%
€1m
33.33%€1m
33.33%€1m
Aviva: Internal
Co-Directors’ Cover - Corporate
JTS Ltd
Jim €1m Tom €1m Sean €1m
Aviva: Internal
Co-Directors’ Cover - Corporate
Sean
Dies
€1m
JTS Ltd
Sean’s
Estate
€1m
Cancels Sean’s Shares
Aviva: Internal
Co-Directors’ Cover - Corporate
JTS LtdValue €3m
50%€1.5M
50%€1.5M
Aviva: Internal
Contingent Purchase Agreement
• Special Board Resolution
• Copy contract available at least 21 days before meeting at the company’s registered office
• A Special Resolution must be approved by the company in respect of each Agreement
• Shareholder party to contract can’t vote for the resolution
Co-Directors’ Cover - Corporate
Aviva: Internal
Also - After Buyback
• Beneficiaries reduce shareholding by 25% or more
• Beneficiaries control <=30% of equity
• Else it will be considered a disposal for CGT
Co-Directors’ Cover - Corporate
Taxation of policy proceeds
• Tax can be avoided if
– Company not on the Stock Exchange
– Beneficiaries resident and ordinarily resident in the state for the year in which the shares are purchased
– The shares owned for 3 years prior to being purchased
Aviva: Internal
Partnership Cover
• Personal arrangement between Partners
• Insured on either
• Life of Another
• Own Life in Trust
• Premiums paid by Partners
• On death, sum insured buys back share of Partnership
• Surviving Partners retain control of Partnership
• Dependants of deceased Partner paid for share of Partnership
Aviva: Internal
• What is a Partnership?
• 2 or more self employed people together to carry on a trade or profession
• Usually agreement in place
• If no agreement – Partnership Act 1890 applies
• On death, under the act, partnership is dissolved
• Any sum due to the deceased partner is a debt on the surviving partners
Partnership Cover
Aviva: Internal
Partnership - Implications
• Legal agreement in place to pay an IMMEDIATE capital sum to
the deceased partner’s estate in respect of:
• Deceased partners share of undrawn profits for the
period
• Deceased partners share of the value of fixed assets
• Payment in respect of the deceased partner’s share of
partnership goodwill
Aviva: Internal
Partnership - Implications
• If sufficient liquid capital not available then surviving partners
may have to borrow
• Could mean the prospect of expensive loan repayments in the
years to come
• If not able to borrow then may be forced to pay a pension to
the deceased partner’s dependants – a long term financial
drain on the partnership’s finances
Aviva: Internal
Partnership Cover
JTS & CoValue €3m33.33%
€1m
33.33%€1m
33.33%€1m
Aviva: Internal
Cover required = €3m
€1m per Partner
Own Life in Trust
Partnership Cover
Aviva: Internal
Partnership Cover
Tom
€1m
Jim
€1m
Sean
€1m
€1m CoverIn Trust for
Sean & Tom
€1m CoverIn Trust forSean & Jim
€1m CoverIn Trust forJim & Tom
Aviva: Internal
Tom
Jim
Sean
Dies
€500K
€500K
Partnership Cover
Aviva: Internal
Tom
Jim
Sean’s
Estate
€500K
€500K
Partnership Cover
Aviva: Internal
JTS & CoValue €3m
50%€1.5M
50%€1.5M
Partnership Cover
Aviva: Internal
• Life of Another
• Manageable for 2/3 Lives
• Proceeds tax free as plan owner has paid the premiums
• Own Life in Trust
• Less complex for 4+ Lives
• Proceeds tax free, however, certain conditions need to be met
• Corporate Co-Directors
• Not an issue
• Company owns policies
• 1 New director/shareholder = 1 new policy
Own Life in Trust v Life of Another
Aviva: Internal
Director / Partner A
Own Life Cover
In Trust for B In Trust for D In Trust for C
Partner B
Own Life Cover
In Trust for A In Trust for D In Trust for C
Partner C
Own Life Cover
Partner D
Own Life Cover
In Trust for CIn Trust for BIn Trust for AIn Trust for BIn Trust for DIn Trust for A
•Simple arrangement
•Funds end up in the right hands
•Not a correct distribution of cost
•Flexible – easy to add partners
Own Life in Trust
Aviva: Internal
Director / Partner A
Life Cover on B Life Cover on D Life Cover on C
Director / Partner B
Life Cover on A Life Cover on D Life Cover on C
Director / Partner C Director / Partner D
Life Cover on CLife Cover on BLife Cover on ALife Cover on BLife Cover on DLife Cover on A
•Correct Distribution of cost
•Funds end up in the right hands
•A large number of policies required
•Inflexible when adding a new life
Life of Another
Aviva: Internal
KeyPerson Cover
• Protect the Company
• Death or serious illness of a Key employee
• Loss of profits
• Repayment of loans
Aviva: Internal
• SME
• Tom – Chief Developer
• Helped found company
• Personal guarantor of bank loans
• Specific industry knowledge
• Difficult to replace
• Vital Large contracts
• Tom’s reputation & experience
KeyPerson Cover
Aviva: Internal
• Potential loss of:
• New Business opportunities
• KeyPerson’s management/technical skills
• Credit facilities.
• Potential recall of loans
• NOT Sole Trader or Majority Shareholder
• Maybe personal cover?
• Policy MUST be owned by a company
KeyPerson Cover
Aviva: Internal
• Term Life Cover Contract
• KeyPerson ~ Life Insured
• Company ~ Policy Owner & Premium Payer
• On Death
• Sum Insured paid to Company
• Specified Illness Cover also available
• No Conversion Option
KeyPerson Cover
Aviva: Internal
• Quantifying financial loss (Involve company accountant)
• Technical expertise
• Industry contacts & Nature of the industry
• Salary
• Cover must be in 2 parts
• Loans
• Loss of Profits
• 2 separate contracts if both are covered
• Tax relief implications
KeyPerson Cover
Aviva: Internal
• Loans
• KeyPerson made to the company OR
• Company loans with KeyPerson personal guarantee
• NOT intended the company to be better off financially.
• Loss of Profits
• Company better off initially
• Loss of profits spread over future years
(Revenue & Evidence)
KeyPerson Cover
Aviva: Internal
KeyPerson Cover – Tax
• Chief factor in determining whether proceeds will be subject to tax is the purpose for which the policy is taken
out – to cover loans or protection against loss of profits
• For loan protection the proceeds should be treated as a capital receipt and exempt from tax
• For protection against loss of profits, these should be deemed as a “revenue receipt” and subject to Corporation
Tax at the manufacturing rate – 10%
• Involve the company’s legal/tax advisers!
Aviva: Internal
• Tax relief available on premiums IF
• Loss of profits only &…..
• Arms-Length Relationship ~ Employer/Employee
• KeyPerson controls < 15% of ordinary share capital
• Fixed Term Policy
• NO surrender value or investment content
• Term ends on or before NRA
KeyPerson Cover - Tax
Aviva: Internal
1. Decide who should be covered and for what sum assured
2. Pass the Board Resolution – proof of intention of the policy and Board agreement
3. The company completes the application form with the keyperson answering the underwriting questions
4. Appropriate policy put in place
KeyPerson Cover - Stages
Aviva: Internal
Other Business Protection Needs
• Executive Income Protection
• Group Protection
• If doing a “Business” based fact-find then make sure these needs are included
Aviva: Internal
Scenario ABC Ltd
John Graham Peter
Anne Sarah Susan
Young children
Rented Property
John and Peter (personally)
Aviva: Internal
Scenario ABC Ltd
John Graham Peter
Anne Sarah Susan
Young children
Rented Property
John and Peter (personally)
2 PARTNERSHIP PLANS IRO PROPERTY PARTNERSHIP
3 KEYPERSON PLANS (life and specified illness cover)
3 Co-Directors SHARE BUY BACK PLANS
3 EXECUTIVE IP PLANS
Aviva: Internal
Karen Gallagher
52
Income Protection
Aviva: Internal
What is income protection?
Protects lost income if your client
cannot work due to illness, accident or
injury.
It is a replacement income
that will help pay their day
to day living expenses
The benefit continues until they recover
and are fit to return to work or until they
no longer qualify.
The illness does not
have to be life
threatening.
What is income protection?
Aviva: Internal
The main features and benefits
Guaranteed Cover
– Guaranteed for
term
Retirement Age –
55, 56, 57………..70
Reviewable Cover –
5th AnniversaryMax Benefit-
€262,500 (75%
€350,000)
You decide
Aviva: Internal
Level Plan - Benefit level
for term Indexing Plan –
Premium 3.5% benefit 3%
Escalation in claim –
3%
You decide
Deferred Period
4, 13, 26, 52
The main features and benefits
Aviva: Internal
Overseas Benefit –
Full benefit in EU,
Ltd to 13 outside
Guaranteed Increase
Option – By 20%
every 3 years
Hospital Cash
Benefit
Automatic Benefit
The main features and benefits
Automatic Benefit
Automatic Benefit
Aviva: Internal
Waiver of Premium – No
premium paid while on
claim
Relapse BenefitProportionate Benefit Rehabilitation
Benefit
Automatic Benefit
Automatic Benefit
Automatic Benefit
Automatic Benefit
Aviva: Internal
Broker - Client meeting processUse Social Proofing and Anecdotes to reinforce
Previous clients that are on claim, people you know, claims testimonial videos
Provide the solution for the client
Advise client of need for income protection
The Client
meeting
Manage client expectations
Pre-existing illness’s may not be covered
The Client
meeting
Manage Client Objections The Client
meeting
The Client
meeting
Aviva: Internal
Typical ObjectionsTelephone
I have a “few bob” set aside for that eventuality
I can’t afford it
I already have Serious Illness cover
I would prefer a lump sum if I became ill
It’s too expensive
It probably won’t happen to me
I’m covered by my employer
Aviva: Internal
I can’t afford it
salary
Who will pay all these bills?
IncomeCar
savings
Mortgage/Rent Insurance
Utility bills
food
Loan Repayments holidaysChildren’s education
State Illness Benefit - €193 p/wSelf Employed ?
Aviva: Internal
It’s too expensive
What is your client’s income if assessed as an asset?
A 40 year old
earning €70,000
working to age 65
Total earnings to
retirement age
= €2,552,149
Can you afford to be without
it?
Aviva: Internal
It probably won’t happen to me
By 2020, 1 in 2 people in Ireland will develop cancer during their lifetime.
It probably
won’t happen to me
An estimated 30,000 people are living in the community with disabilities as a result
of a stroke.
It probably
won’t happen to me
1 in 5 people in this country will suffer from depression at some point in their lives
It probably
won’t
happen to
me
Aviva: Internal
I already have serious illness cover
The reasons
why people
needed to
claim on
their Income
Protection in
2017
Friends First Health Trends
Orthopaedic
Psychological
Cancer
Neurological
Respiratory
Cardiac
Other Medical
25% - Orthopaedic
21% - Psychological
20% - Cancer
6% - Neurological
4% - Respiratory
3% - Cardiac
21% - Other Medical
Aviva: Internal
I have a “few bob” set aside for that eventuality
17 months
based
on monthly
outgoings
of €3,000
How long would €50,000 last?
€50,000
€45,000
€40,000
€35,000
€30,000
€25,000
€20,000
€15,000
€10,000
€5,000
€0
2 3 5 7 81
0
1
2
1
3
1
5
1
7
How long would €50,000 last?
17 months based on monthly outgoings of €3,000
Aviva: Internal
I’m covered by my employerMany people believe that they are covered by their employer - ask open
questions on your Fact Find.
Aviva: Internal
When does the income protection conversation work best?
It should be seen
as the cover that
covers
everything else
in your client’s
financial plans:
Dependency….Income
Without Income these fall away
Investments
Term
Pensions
Aviva: Internal
Review & Re-balancing benefits
From
Life Cover * 4 times
No Living Benefits
To
Life Cover * 3 times
Living Benefits-SI/IP
LIFE /SI / IP
Aviva: Internal
Income Protection and your family protection recommendation
Take for example:
Mark and Ann
with two young children
Mark
41 years old
Earns €55k p.a
Non smoker
Class 1
Retirement age 65
Ann
41 years old
Earns €35k p.a
Non smoker
Class 1
Retirement age 65
House view should be
Income Protection
Life cover
Specified Illness
Aviva: Internal
What are Mark and Ann’s requirements in simple terms?
Family Protection
Cover if a
catastrophic health
issue happens which
results in the main
earner unable to
earn an income
Cover for
pre-mature death
– family taken
care of financially
Lump sum to
cover health
expenses
Aviva: Internal
Your recommendation-in simple terms
Within your budget we have provided financial cover for your
family if either of you die pre-maturely
And if you survive a catastrophic health issue but are unable
to work we will make sure you will have a regular income
coming into the household until retirement age if necessary
We have also provided a significant lump sum to cover any
short term medical costs if serious cancer or heart issues
effect either of you
Aviva: Internal
Family Protection Package
GOLD SILVER BRONZE
Dual Life Cover (€462k) Dual Life Cover (€462k) Dual Life Cover (€462k)
Specified Illness (€44k) Specified Illness (€44k) Specified Illness (€44k)
€106.57 €106.57 €106.57
Income Protection Income Protection Income Protection
Mark: €595 p.w. (€102.77) Mark: €595 p.w. (€71.87) Mark: €595 p.w. (€63.37)
Guaranteed Premium, 13 weeks Guaranteed Premium, 26 weeks Reviewable Premium, 26 weeks
Gross Premium: €209.37 Gross Premium: €178.44 Gross Premium: €169.94
Net Premium: €188.34 Net Premium: €163.67 Net Premium: €157.27
Aviva: Internal
Income Protection as part of Pension Planning Advice
Premium Available= €400 per month
Net Cost to Client= €240 per month
Income Protection €80
Pension €400
Pension Term Assurance €20
Pension €300
Aviva: Internal
In Conclusion• Advice is key – focus on this not product
• Be Passionate about Protection
• What will the customer say about you?
“Cheapest”“Took care of me and my family”“Won’t have to worry financially if I got ill and couldn’t work”
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