Business Protection Overview Karen Gallagher - LIA...Scheme Size No. of Schemes Active Members Non Group 57,666 57,666 1 to 50 9,317 60,918

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


JTS LtdValue €3m33.33%

€1m

33.33%€1m

33.33%€1m

Aviva: Internal


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

Aviva: Internal


Tom

Jim

Sean’s

Estate

€500K

€500K

Aviva: Internal


JTS LtdValue €3m

50%€1.5M

50%€1.5M

Aviva: Internal


• 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


JTS LtdValue €3m33.33%

€1m

33.33%€1m

33.33%€1m

Aviva: Internal


JTS Ltd

Jim €1m Tom €1m Sean €1m

Aviva: Internal


Sean

Dies

€1m

JTS Ltd

Sean’s

Estate

€1m

Cancels Sean’s Shares

Aviva: Internal


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


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


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


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


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”

Documents

Business Protection Overview Karen Gallagher - LIA...Scheme Size No. of Schemes Active Members Non Group 57,666 57,666 1 to 50 9,317 60,918