$200 a month in premiums, $2 million? This kind of insurance can help enterprises effectively prevent risks!
19 Jul 2021
New Zealand is one of the easiest countries in the world to start a company: it doesn’t require layer approval from the executive branch, no requirement for registered capital, just register to pay on a government website, and you can set up a new company in a short time. That’s why many people in New Zealand choose to start their own company or partnership.
However, the low threshold for starting a company does not mean that survival is easy, in fact, every year many enterprises disappear silently in the market. Some of this is because of poor management, but many because they do not prepare a comprehensive set of corporate insurance protection for themselves.
A recent customer told YG Insurance about such a harrowing past (here’s what the customer said):
I’m an employee of an Oakland company, but I used to run a marketing company in Christchurch. The company was set up by my wife and I in partnership with another couple, each with half the shares. Operated for 5 years, operating well, when the company’s valuation is 3 million NZD, we are all very motivated, is ready to recruit horses, do a big job.
Who knows, that year’s Easter, the partner and the couple travel in a car accident, the man tragically died, the woman survived. After the tragedy, the woman ran the business without any intention and asked us to buy the other half of the shares within a month.
When we started the company, we didn’t know anything and didn’t sign any share sale contracts. At that time, she had to be in a hurry, the amount is also large, and finally we went nowhere, can only be less than 20% of the market price to sell the company to competitors. The business that was supposed to be doing well is gone.
The most heart-tingling thing is that later I learned that there is actually an insurance can protect this, called mutual insurance shareholders. Premium is not expensive, the amount of insurance is quite high, why didn’t anyone tell me before?!
After listening to the customer’s humbling past, YG Insurance decided to introduce the insurance project called mutual insurance to shareholders to the Chinese friends of the partnership.
Shareholder mutual insurance and advantages
The purpose of mutual insurance for shareholders is to protect the common rights and interests of shareholders, and in the event of personal accident or other misfortune, the insurance company shall provide a high compensation to buy back the shareholder’s shares in order to ensure the continued operation of the enterprise and help the company tide over difficulties.
Shareholder mutual insurance can:
- Avoid the company’s equity falling into the hands of competitors or unfamiliar business people
- Reduce the impact on the financial and business of existing shareholders
- To ensure the normal operation of enterprises and grow and develop
How to protect the interests of shareholders by mutual insurance
A recent corporate customer visited YG Insurance and asked YG Insurance to assess the business risks it faced.
The general situation of the company is as follows:
A year ago, the ABC trio each funded $ $500,000 partnership to set up the transportation company, which is expanding in size and doing well, with a $2 million valuation and $800,000 in bank loans. The company was not established under a Buy and Sell Agreement.
After learning more about the company’s operations, YG Insurance asked customers three questions:
Can B and C do so if shareholder A suddenly finds out that he is seriously ill or has an accident, and the family of A or A asks the other two shareholders, B and C, to buy their shares at a reasonable market price within a limited time? (Refer to the customer’s real experience at the beginning of the article)
The company has a loan of $800,000, each shareholder is responsible for one-third of the repayment, if one of the shareholders B died of illness or accident, who will pay off his company loan?
If a shareholder C is unable to participate in the management or operation of the company for more than three months due to health problems or accidents. Who’s going to replace him? So how can the company’s losses be compensated?
These three questions got the customer into a meditative situation, when he discovered that, although the company was operating well on the surface, everything was calm;
YG Insurance offers three solutions to these three problems:
Scenario 1: Shareholders are insured against each other
YG Insurance proposal: the company-funded three shareholders to configure personal and lifelong disability insurance, the amount of protection is $2 million. Because the three shareholders are between the ages of 30 and 45 and are in good health, the monthly premium is only about $200.
YG Insurance recommends that the beneficiary of mutual insurance for shareholders be an independenttrustee, and in the event of an insurance, the insurance company will settle the claim to the independent trust trustee, who will determine specific matters such as the sale or transfer of equity.
Imagine that if this is not insured, the company will need to pay the sudden fee from a bank loan, not to mention whether it will succeed in the loan within a specified period of time;
Option two: Debt protection
YG Insurance recommends protecting the company’s debt against the company’s $800,000 loan status quo. The amount of protection is one-third of the total amount of the loan, or $266,000, to ensure that when any shareholder is unable to operate, the insurance company pays the company’s debts.
YG insurance recommends that the beneficiary of the policy be a financial institution, such as a bank or lending company.
Scenario III: Key person insurance
YG Insurance recommends the allocation of corporate key people’s insurance to ensure that in the event of disability, illness or accident of any shareholder, the company receives liquidity compensation to help the enterprise tide over the difficulties.
It is worth mentioning that some of the above insurance can be tax deductible, specifically can consult professional financial personnel.
YG Insurance finally want to remind you of the partnership of Chinese friends: in order not to repeat the mistakes of the customer at the beginning, in order to survive the ups and downs of business risks, please assess the commercial risks as early as possible, and choose corporate insurance for your company escort!
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