When you set up your business insurance, the focus can be on the here and now – how many employees you have and their level of skill, the business income, level of debt and so on. However, thinking about the business’ future insurability is also worth considering.
This allows you to look forward and consider your needs in the coming years as the business grows and changes. By reserving the additional cover now, you won’t have to apply for a new policy, or repeat the pre-approval process down the track.
A client bought a farm and needed to get business insurance. It was agreed that $2 million would be enough for their current needs, however they knew the farm next door would be coming up for sale in the next ten years and they wanted to be able to buy it, and be able to insure it even if circumstances had changed in that time.
In anticipation of this future plan, they took out $2 million of cover right away, but also set their future insurance for $3 million. When they bought the second farm, increasing the insurance premium was straightforward.
While exact details can vary between providers, the key limits to using the increase usually relate to the increase in value of a key person to the business over three years, an increase in financial interest in the business averaged over three years, and an increase in the loan guarantee.
You need to be taking out the original sum at the time to be able to set up the future insurability option, and the maximum amount insurable is five times the original sum assured, up to $5 million.
The extra premium is relatively low, but varies depending on your original sum insured and how much you have reserved for the future. The premiums will also increase as the cover does. This is where your adviser can help with tailored advice for your current and future circumstances.
Most life insurance policies have a built-in ‘special events’ increase which means you can increase your existing cover, without further underwriting, in circumstances such as having a child (by birth or legal adoption), marriage or civil union, divorce or the dissolution of a civil union. The specifics can change between providers but they may also include financially supporting a dependent child through a first course of full-time tertiary education, taking out or increasing a home loan, becoming responsible for the full-time care of a close relative, or the death of a spouse or de facto partner.
The increase available is different for each event, and what is offered can vary between providers, so it is always good to talk with your adviser about your plans for the future as well as your life stage right now.
Want to discuss your future insurability or talk about a special events increase? Contact one of our friendly and knowledgeable advisers.
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