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Business Succession Planning:

Business Succession Planning

Need for Succession Plan

Need for Asset or Buy/Sell Strategy

Need for Liability or Key Person Strategy

Negotiating a Succession Plan


Simple Succession Plan:

Simple Succession Plan


Complete Succession Plan:

Complete Succession Plan


Financial Needs

Insurance Funding

Retirement Funding


One Page Strategy:

One Page Strategy

Asset Needs

Liability Needs

Personal Needs

Who Pays the Premiums?

Valuing the Business

Simplifying the Valuation Issue

Equity vs. Loan Capital


One Policy Strategy:

One Policy Strategy


Dual Role of Personal Cover

Dual Role of Debt Red'n Cover

Security & Tax-Effectiveness

Cost Savings

Pre-Agreed Purchase Price

Apportionment of Premiums

Methods of Aggregation


Multiple Policy Approach:

Multiple Policy Approach

Super Fund Ownership

Tax Disadvantages

Cost Disadvantages

Other Disadvantages

Geared Premium Funding

Super Buy/Sell


One Page, Two Policy Strategy:

One Page, Two Policy Strategy


Other Issues:

Tax Deductibility

Inadequate Insurance Proceeds

Vendor Finance

Changing Needs

Future Growth of Equity

Trauma Buy/Sell Strategy


Sole Proprietors and Families:

Sole Proprietors and Families


Family Ownership

Sale Strategies

Third Party Buy/Sell Strategies

Estate Equalisation Strategies

Family Buy/Sell Strategies

Second Generation Strategies

Debt Reduction Strategies




Personal or Estate Planning Insurance (Personal or "Green" Needs)


Purpose of Personal Cover

Personal Cover is designed to fund:

  • the repayment of any Personal Debts and Liabilities: and

  • the Living Expenses of the Life Insured or their Family upon the occurrence of an Insured Event.


Green Needs

On the One Page Risk Analysis Worksheet, the Life Insured's Personal Needs are coloured Green.


Determining the Capital Amount Required to Fund Living Expenses

When the Life Insured has repaid their Personal Debts and Liabilities (either during their lifetime or out of Insurance Proceeds payable upon the occurrence of an Insured Event), the focus of their needs is the funding of Living Expenses.

It is customary to determine a capital amount, which when invested at, say, 5% per annum will fund the desired amount of Living Expenses per annum.

Thus, if a Life Insured wishes to fund Living Expenses of $50K per annum (without eroding their capital), then invested at 5% per annum, they require a capital amount of $1M.


Investments and Superannuation Contribute to the Capital Amount

Usually, the amount of Personal Cover will take into account the amount of any investments, superannuation and cash held by the Life Insured.

Thus, if the Life Insured has no investments, they require Personal Cover of $1M to achieve their goal.

If their investments, superannuation and cash total $400K, then they require Personal Cover of $600K to meet their target capital amount.


Insured Purchase Price Contributes to the Capital Amount

If the Life Insured is a Business Proprietor who also has Buy/Sell Cover, the net Purchase Price of their Equity (after the payment of any Capital Gains Tax and Transactional Costs payable by the Estate or Vendors) in the Business will contribute to the amount of capital that will fund their Living Expenses.

Ultimately, their Equity is one of the investments that needs to be taken into account in determining whether they have a shortfall that can be addressed by Insurance Cover.

If your Personal Needs exceed the Net Sale Price of your Equity in the Business, it may be necessary to obtain additional Personal Insurance to meet your needs.

As a result, the Personal Cover of a Business Proprietor meets their Living Expenses Need to the extent that the Insured Purchase Price is inadequate.

In effect, it is a "top up" over and above their Buy/Sell Strategy .


Aggregate of Purchase Price and Personal Cover

In the case of a Complete Succession Plan, the Life Insured's family will normally receive the aggregate of:

  • the Purchase Price (or Blue) Cover; and

  • the Personal (or Green) Cover.

The aggregate of the Blue and Green Cover will fund the Living Expenses, regardless of how it is characterised in the Succession Plan or Agreement.

In a sense, under a Complete Succession Plan, the Life Insured will receive a Blue Cheque and a Green Cheque.

What matters is the aggregate of the two.


Determining Your Personal Needs

The following issues should be taken into account in determining your Personal Needs:

  • the personal debts and liabilities you wish to repay;

  • the anticipated living expenses of your family after your death;

  • any income from other sources (salaries, wages, rental, dividends, other investment returns) that would contribute to meeting this need;

  • the amount of any income shortfall;

  • the amount of capital that would be required to meet the income shortfall;

  • any capital from other sources (the Sale Price of your Equity in the Business, the repayment of any loan accounts, any superannuation benefits, and other investment strategies) that would be available to meet the capital need; and

  • the capital shortfall that could be funded by additional Personal Insurance (if appropriate).


One Policy Strategy

Click here to read about the One Policy Strategy.


Dual Role of Personal Cover

Click here to see how your Personal Cover can create a "warehouse" or "comfort zone" for future growth of the Sale Price of your Equity in the Business.

In a sense, a One Policy Strategy helps you realise that your "Green Cover" can be "Future Blue Cover".


Copyright: Clover Law Pty Ltd



Adviser Tip

Your Personal Cover can be the "warehouse" or "comfort zone" that allows you to fund any increase in the Purchase Price.

See more Adviser Tips


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