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Site Map

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Adviser Updates

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Publications and Documents


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




Dual Role of Debt Reduction Cover


The analysis here highlights the relationship between the Buy/Sell and Personal Cover.

As one type of Cover increases, the other can decrease.

Mathematically, this is an inverse relationship.

However, there is a similar relationship between Buy/Sell and Debt Reduction Cover.


Relationship between Liabilities and Net Asset Value

As the Debt of the Business reduces, the value of the Equity in the Business increases.

This occurs because, in effect, the value of the Equity is a proportionate share of the Net Asset Value of the Business (i.e., Gross Assets - Liabilities).

Assuming the Gross Asset Value of the Business remains constant, any reduction in the Liabilities will result in an equivalent increase in the Net Asset Value of the Business.


Aggregation of Buy/Sell and Debt Reduction Cover

The One Policy Strategy allows Proprietors to aggregate Business and Personal Cover.

Whether or not Personal Cover is incorporated onto the One Policy, it makes sense to aggregate Buy/Sell and Debt Reduction Cover, so that inevitable or predictable increases in the value of the Equity can be funded by re-purposing the Debt Reduction Cover.

In other words, as the Debts of the Business decrease over time, the Debt Reduction Cover can be re-allocated to Buy/Sell Cover.

This is particularly relevant to investments in Property where the Debt is being repaid on a Principal and Interest basis.

Like Personal Cover, Debt Reduction Cover can have a dual role.

Not only does it reduce Debt in the event of a Claim, it can be re-purposed as Buy/Sell Cover as the Debt reduces and the Net Asset Value of the Business increases.


Copyright: Clover Law Pty Ltd



Adviser Tip

Your Purchase Price and your Personal Cover both contribute to the "pot" you have created to fund the total capital requirements of your family.

As your Purchase Price increases over time, your Personal Cover can come down.

If they are both on the One Policy, all you have to do is "change the mix".

See more Adviser Tips



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