Buy Sell Insurance Australian - Covermate Life

Q: Does this cover apply if someone is seriously ill but not permanently disabled?

Yes, if trauma insurance is included in the arrangement.

Protect Your Business and Shareholders with Buy-Sell Insurance

What happens if one of your business partners passes away, suffers a serious illness, or becomes permanently disabled? Without a clear plan, ownership of the business may fall into dispute, control could shift unexpectedly, and surviving partners may struggle to buy out the departing owner’s share.

Buy-Sell Insurance provides certainty. It ensures there is funding available to support a legally binding buy-sell agreement, so ownership transfers are smooth, fair, and do not jeopardise your business.

At Covermate Life, we help business owners design tailored buy-sell insurance solutions that align with your business structure, shareholder agreements, and long-term succession planning.

What is Buy-Sell Insurance?

Buy-Sell Insurance (sometimes called shareholder protection insurance or succession planning insurance) is a strategy that combines:

A buy-sell agreement: a legal document setting out what happens if a co-owner exits due to death, disability, or illness.
Insurance policies: funding (usually via life, TPD, and/or trauma cover) to provide the cash for remaining partners to buy out the departing owner’s share.

The result: a smooth transfer of ownership, business continuity, and financial certainty for all parties involved.

Why Buy-Sell Insurance Matters

Without a funded buy-sell arrangement:

A departing owner’s share may pass to their estate or family, creating disputes or unwanted new owners.
Surviving partners may be forced to borrow heavily or sell assets to fund a buy-out.
The business could face instability at a time when strong leadership is most needed.

With Buy-Sell Insurance:

Ownership stays with the intended partners.
The valuation method is clear and pre-agreed.
Funding is available immediately via insurance proceeds.
Families of departing owners are compensated fairly without delay.

Trigger Events Covered

A buy-sell agreement can be triggered by events such as:

Death of a shareholder or partner
Total & Permanent Disability (TPD)
Critical illness / Trauma (e.g. heart attack, cancer, stroke)
Incapacity to perform their role in the business
Retirement, bankruptcy, or other agreed events (depending on the agreement)

Policy Structures

There are several ways to structure the insurance:

Self-ownership – each owner holds their own policy; benefits go to their estate and fund the buy-out.
Cross-ownership – owners hold policies on each other; benefits go directly to surviving partners.
Business-owned – the company or trust owns the policies and funds the buy-out.

The best option depends on your business structure, taxation, and estate planning considerations.

Valuation Methods

Your agreement must specify how the business will be valued when a trigger event occurs. Common approaches include:

Fixed value (updated annually)
Formula-based (e.g. EBIT × multiple)
Independent valuation (professional assessment at the time of trigger)

Many businesses use a combination to ensure fairness and flexibility.

Who Needs Buy-Sell Insurance?

Businesses with two or more owners/shareholders
Family businesses and professional practices (medical, legal, accounting, consulting)
Companies where owners have signed personal guarantees
Any business wanting a smooth, planned ownership transition

What Affects the Cost?

The cost of Buy-Sell Insurance depends on:

The owners’ ages, health, and occupations
The value of each ownership share
Whether you include life, TPD, and/or trauma cover
The structure (self-owned, cross-owned, or business-owned)
Waiting periods and definitions of disability/illness

Common Mistakes to Avoid

Having an agreement but no funding in place
Using outdated valuations that don’t reflect current business value
Drafting agreements without legal or tax advice
Forgetting to review policies as ownership or valuations change

How Covermate Life Helps

We make the process straightforward:

Understand your business – ownership, risks, and financial exposure.
Design the solution – recommend cover types, sums insured, and structures.
Coordinate with professionals – work with your accountant/solicitor to align the legal agreement.
Arrange cover – implement policies that match your agreement.
Review regularly – update as your business grows or ownership changes.

Frequently Asked Questions (FAQs)

What types of insurance are used in a buy-sell agreement?
Most arrangements use life cover, often combined with TPD and trauma insurance for broader protection.

How much cover do we need?
It usually matches the value of each partner’s ownership share, based on the agreed valuation method.

Who should own the policies?
This depends on your structure. Options include self-ownership, cross-ownership, or business-owned. Each has tax and estate planning implications.

What if one partner’s health makes cover expensive?
Alternatives like staged buy-outs, vendor finance, or partial funding may be considered.

How often should buy-sell insurance be reviewed?
At least annually, and whenever there are changes in business value or ownership.

Is trauma cover always necessary?
Not always, but it can provide vital funding if a serious illness prevents an owner from working, even if they are not permanently disabled.

FAQs

What happens if one partner wants to exit but the other can’t afford to buy them out?
Your agreement can allow staged buy-outs or deferred payments, supported by insurance proceeds where possible.

If we agree on a formula, can we change it later?
Yes. Agreements usually include review clauses so you can update valuations.

Does this cover apply if someone is seriously ill but not permanently disabled?
Yes, if trauma insurance is included.

How long are waiting periods?
They typically range from 30 to 90 days, depending on policy terms.

Can shares transfer directly to surviving partners without going through the estate?
Yes — if the buy-sell agreement is binding and properly structured.

What are typical costs for a two-partner business in their 40s?
Premiums vary based on cover types, sum insured, health, and occupations. We can provide tailored quotes.

Does each partner need to sign the agreement?
Yes. A legally binding buy-sell agreement requires all owners’ signatures.

Next Steps

Protect your business, your partners, and your family. Get a quote

Important information (general advice warning)

This information is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider the PDS and seek personal advice before making any decision.