1 THE GUIDE TO KEEPING YOU AND YOUR BUSINESS COVERED
2 New Zealand s leading life insurer Sovereign has been a part of New Zealanders lives since 1989, and today provides life and health insurance, home loan, investment and superannuation products to one in nine New Zealanders over the age of 15. Our products are carefully designed to meet the specific needs of our many and varied customers, helping them to build or regain independence and financial freedom. In short, we aim to provide long-term peace of mind. Sovereign is The country s leading life insurance company, providing life insurance cover to more New Zealanders than anyone else The country s fifth-largest home loan provider in New Zealand, with over 50,000 customers New Zealand s third-largest health insurance provider on the basis of premiums and memberships The sixth largest in the retail managed fund market, managing over $1.3 billion. If you didn t know these things, it s probably because Sovereign products are predominantly sold through independent financial advisers. We have a relationship with more than 1,500 advisers throughout the country, who recommend Sovereign insurance and investment products to their valued clients. Employing around 800 staff, we re able to provide expertise and innovation in a wide range of areas, including a unique HealthScreen service, and comprehensive case management and claims rehabilitation support. There when you need us With Sovereign, you can be confident that we ll be there when you need us. We pay out more in claims than any other life insurer, and our claims history has earned us an A rating (Excellent) from the leading worldwide rating agency for the insurance industry, A.M. Best. Last year we paid out $232 million in claims, providing our customers with financial support in their time of need. We re dedicated to working closely with our customers to achieve the best possible outcome when the unexpected happens. Our philosophy on all claims is to make the process easy for you. Our team of experienced claims and rehabilitation specialists are ready to assist should you need to make a claim.
3 WHAT ARE THE RISKS TO YOUR BUSINESS? There are more than 350,000 businesses in New Zealand, and the vast majority are small-to-medium-sized. They have different products, different markets, and different needs but most started life in much the same way, and face the same challenges and realities. Each gives its owners and their families an income, a career, security, and eventually an investment to sell. But not all businesses make it. The reality is that for a variety of reasons, many businesses fail. Life is full of risks and pitfalls and business especially so. Succeeding in any given venture is challenging enough, without having to worry about the unexpected consequences of illness, injury or death. Most people are aware of the need to insure against property loss or damage, but what about the threat to your most valuable human resource you, and the people who are vital to the continuing success of your business? The loss or temporary loss of key personnel can have a dramatic effect on any business, and can even be terminal. In the event of a significant tragedy or illness, how long could your business survive on cash reserves and customer/supplier goodwill before the cash flow and profits dry up? Are you aware of all the risks that are relevant to your business? Where are you most vulnerable? Could you or your business survive, and prosper, in the absence of one or more key players? Of course, some business risks, like market fluctuations, you will have little control over. But other risks and events you can plan for and that planning can mean the difference between success and failure. We ve put together this guide to help you recognise the risks your business will face, and what steps you can take to protect yourself against them. Whatever the size and nature of your business, you need to give full consideration to your business insurance needs. FOOD FOR THOUGHT One in nine men will be disabled and off work for more than 12 months before age One in five women will be disabled and off work for more than 12 months before age % 51% Fifty-one per cent of males will suffer a critical illness before the age of % 33% Thirty-three per cent of females will suffer a critical illness before the age of Sources: 1 Insurance Alert, Winter GenRe LifeHealth Australia, 2005
4 IS YOUR BUSINESS READY FOR ANYTHING? The first step in putting together your protection plan is to identify the risks that your business could face. Most of us will take steps to protect the obvious, such as plant and office equipment, and intellectual property. However, people themselves are often the most important asset for a business, and their loss, temporarily or permanently, can have a far greater impact. Even so, this type of protection is often overlooked. Four of the most common risks to a business are listed below. You re the boss If you re a sole trader or a small business partnership, chances are the buck stops with you. It s your name on that commercial loan agreement and you re ultimately responsible for the repayments and any other liabilities and making sure your business commitments are met. If the unexpected happens and you re left ill or disabled, and unable to work, who can you turn to? Covering your costs You may have been struck down by illness or injury, but you ll still need to ensure that your ongoing business expenses are met, and your debtors paid. Business continuity can be essential if you re to keep your customers happy, and your reputation intact. Making sure it s business as usual will also help pay your mortgage and monthly bills at home, and preserve your family s lifestyle. Relying on others Most businesses have key personnel with special skills or knowledge, without whom the business may struggle to operate effectively, or even survive at all. Could your business get by without you, or another key person? If illness or an accident were to leave you short of such a person, you would need to quickly find a replacement, or train an existing employee. This could be both expensive and inconvenient. So it pays to be prepared. Lack of planning Without a proper plan, if you were to suddenly become permanently disabled or to die prematurely, the future of your company might well be at stake. Now is the time to put a succession plan in place this can help make sure your wishes for the future of your company and assets can be followed through, leaving your family and your business debt-free, and providing financial resources for your chosen successor if they need the funds to purchase the shareholding left by your departure. Business protection: It s not a case of can you afford it? but can you afford to be without it?
5 TotalCareMax HOW BUSINESS PROTECTION CAN WORK FOR YOU Protecting a business against the loss of its principals and key staff is an important function of any business insurance policy. Generally, business insurance is broken down into three areas: Business partner/shareholder protection Loan protection Key person protection These along with other benefits are outlined on the following pages. Business partner/shareholder protection TotalCareMax can protect the remaining partners or shareholders in a business in the event of the death or disablement of the insured, providing sufficient funds for them to purchase the insured s share of the business. This provides certainty to the remaining owners and excludes the insured or the insured s estate from having to deal with the complexities of the day-to-day running of the business. The cover on each partner or shareholder should, generally speaking, be proportionate to the shareholding that each has in the business. Loan protection TotalCareMax can provide funds to enable the repayment of debt in the event of the disability/death of a borrower/guarantor. It provides certainty to the lender that the debt will be repaid without the need for a (perhaps costly) realisation of assets that could see the demise of the business. The level of cover is typically aligned to the amount of the loan. Key person protection TotalCareMax protects a business against the loss of its key people. A key person is an employee, or a contractor to an enterprise, whose skills and expertise are essential to the functioning and profitability of the business. If a key person dies or becomes totally disabled, the business may lose clients, suffer from a decline in turnover, incur considerable losses, or even collapse. With key person protection, the company is the owner of the policy, and therefore receives the protection instead of the life insured. To qualify for key person protection, the business must be a profitable, ongoing concern. Calculating the value of a key person: Generally speaking, the value of an employee is related to their remuneration, i.e. they are paid what they are worth. There are two common measurements for establishing the value of a key person: Multiple of profits either two times gross profit or five times net profit Multiple of remuneration this can be five to 10 times the employee s income, depending on the employee s age and size of the business. Other questions that may assist in determining this value include: What is the remuneration package of the key person (including salary, bonuses, share options and other fringe benefits such as vehicle etc)? What particular skills or relationships does the key person have? How easy will the key person be to replace? Is the business profitable? Most people are aware of the need to insure against property loss or damage, but what about the threat to your most valuable human resource you, and the people who are vital to the continuing success of your business? If so, what proportion of this profit is the key person responsible for?
6 Sovereign Services Limited Sovereign House 74 Taharoto Road Takapuna North Shore City 0622 Private Bag Sovereign Auckland Mail Centre 1142 Telephone Facsimile Freephone Freefax Your adviser Business Guide /07
7 BUSINESS CONTINUITY CUSTOM COVER FOR YOUR BUSINESS TotalCareMax Business Continuity offers a flexible package of cover options, combining Business Overheads, Key Person and Locum Protection cover. The insured does not need to purchase all of the benefits together. What s more, all of the cover options can be taken out in conjunction with TotalCareMax Personal Disability Income Protection cover, meaning your business will have plenty of ways to put together an optimal protection plan. The purpose of this product is to provide cover to a business to allow it to survive the short-term total disablement of either the owner or a key person. You choose the combination which suits your business best. Business Overheads agreed value and indemnity Covers everyday running costs of a business e.g. rental of premises, electricity, cleaning and maintenance. Business Overheads cover is designed to meet the needs of small business operators, where the impact of the disablement of the principal is significantly greater, and the associated issues are easier to identify. The following questions will help you determine whether Business Overheads cover is appropriate: What is the applicant s share in the business? How many employees does the business have? How many of those employees generate income? Are the expenses being insured, fixed expenses? Are the expenses consistent with the nature of the business? Is the business profitable? Is the business operated from home? TotalCareMax offers Business Overheads Agreed Value cover and Indemnity cover. The Agreed Value option enables us to provide you with more certainty at time of claim and also provides for a simpler claims process as financial evidence of overheads is not required. Locum Cover The Locum Cover benefit is designed to cover the reasonable cost of engaging a suitably qualified replacement person to run the insured s business while they are disabled. You can choose either Locum Cover or Business Overheads cover, but not both. So, the first question to address is which benefit is more appropriate for your business. The following factors will have some bearing on the type of cover chosen: The nature of the business is it the kind of business that will be able to quickly locate a locum for interim work? Geographic location is the business in an area that has access to the people who are able to perform that particular function? Internal resource are there currently people within the business who would be able to manage the business in the absence of the principal? Existing arrangements are there any arrangements currently in place for situations such as when the principal takes annual leave? To qualify for this form of cover, you must have at least a 25% proprietary interest in your business. Key Person Income Protection cover This benefit is designed to protect the business against the loss of its key employees. The policy can only be owned by the business, not by the insured person. A key person is an employee who has direct effect on the revenue of the business. Typically, this may be: A salesperson Someone who has technical knowledge and ability without which the company could not operate Someone who controls licenses or patents. Backroom functions such as accountancy financial management, stock control or management are not considered to affect revenue, and so cannot generally be covered under this benefit. Key Person Income Protection cover is not available on anyone who has a 25% shareholding or more in the business (including family or indirect interests). This is an Agreed Value benefit that can reimburse the business up to 100% of the employee s remuneration package.
8 PROTECTING YOUR BUSINESS WITH TotalCareMax Now that you know the risks, what can you do to protect yourself and your business? Sovereign s TotalCareMax is a total insurance solution designed specifically for you and your business. You can be sure that whatever the size and nature of your business, we ve got you covered. Sovereign is New Zealand s largest life insurer, with more than 650,000 customers nationwide. A great number of those customers run their own businesses. We pay out more in claims than any other life insurer, and our claims history has earned us an A rating (Excellent) from the leading worldwide rating agency for the insurance industry, A.M. Best. That means you can be confident that we ll be there when you need us. You can choose from our comprehensive and flexible suite of insurance products: LIFE COVER* Essential cover for anyone with business or other financial commitments that could be put at risk in the event of their death. We will pay a lump sum if you die, assisting those left behind. FOOD FOR THOUGHT Every 90 minutes a New Zealander dies from a heart attack (17 deaths a day). 1 Cardiovascular disease is the leading cause of death in New Zealand accounting for 40% of deaths annually (approximately 10,500). 1 LIVING ASSURANCE* Helps guard against financial hardship should you suffer one of a specified number of critical conditions, such as cancer and heart attack. Pays a lump sum ideal for covering immediate business expenses. TOTAL PERMANENT DISABLEMENT* We will pay you a lump sum if you are totally and permanently disabled through sickness or injury, providing long-term certainty that your business will survive. BUSINESS CONTINUITY* A comprehensive business protection package, featuring Business Overheads, Locum Cover, and Key Person Disability Income Protection options. BUSINESS INCOME SUPPORT* On average 20 unsuspecting New Zealanders have a stroke every day. 2 Insurance protection for a number of specific occupations, should you be unable to work, due to sickness or injury. DISABILITY INCOME PROTECTION** Protects your greatest asset your power to earn. This benefit is a monthly payment if you cannot work because of sickness or injury. This is essential if your partner or family depends on your income. * These descriptions of benefits are a summary only, for more information please refer to the benefit sheet or policy wordings. Most benefits are subject to exclusions and other terms and conditions will apply. Sources: 1 National Heart Foundation of New Zealand, The Stroke Foundation of New Zealand, 2007 All references to Life Cover in this brochure relate to Life Cover Business unless otherwise stated.
9 TotalCareMax MAKES IT EASY HOW TotalCareMax WORKS Customer-focused products Our products are flexible enough to meet all your needs, at a price you can afford now and in the future. Your rates are guaranteed For most of our benefits we guarantee the premium rates for one year. In some instances Life Cover is guaranteed for 10 years, or to age 65. Applying for your cover We aim to give you the best possible terms, while making the application process as simple and efficient as possible. Sovereign was the first New Zealand company to introduce the HealthScreen service, free to you. Our consultants are experienced, registered nurses whose job it is to collect the medical information we need to process your application as quickly as possible. This is done efficiently, conveniently and professionally. Customer service Sovereign continually invests in up-to-date administrative systems and highly trained staff so we can deliver excellent service to you and to the advisers who represent our products. Claims payment Our goal is to ensure we meet all valid claims as quickly as possible, to minimise financial pressures on claimants, their partners and family. With Sovereign, you ll enjoy: Flexibility We provide for a variety of needs and circumstances. Cost saving You can save money by grouping different benefits for one or more people under one policy. Time saving One policy covering all your needs is easy to administer and keep track of. A plan for your budget You choose from a range of premium benefit options. Peace of mind Knowing you have reduced the financial risks you and your family face. Cover for yourself and your business Our benefits can provide for both purposes. Calculating your cost Sovereign calculates your premiums (the amount you pay) based on your age, sex, state of health and occupation category (for disability benefits). There are a number of situations in which the premium may change (we will advise you of any new premium before the change is effected): Your premium may change each year depending on the premium option you selected. If you have elected to have some or all of your benefits indexed by the consumer price index, then the premium cost of those benefits will also increase. The underlying premium rates from which your premium is calculated are guaranteed for varying periods of time from the first premium due date, depending on the type of benefit and premium selected. This means that Sovereign cannot review these applicable premium rates during the guarantee period, unless you voluntarily make alterations to your policy or benefits. The underlying premium rates for Life Cover can be guaranteed for either 10 years or to age 65. The underlying premium rates for all other TotalCareMax benefits are guaranteed for one year from the first premium due date. Your premium payment choices Our policies are designed to be flexible so you can design a policy and make payments in a way that best suits your needs. You will have several payment options, including direct debit, VISA and MasterCard. Your frequency of payment You can choose to pay your premiums fortnightly, monthly or annually. If you choose annual payments we will give you an annual discount of 5%. No cash value Sovereign s TotalCareMax is a term life insurance policy only. It is not a savings or investment product. Availability The policies are open to people over the age of 10 for Life Cover and Family Protection (maximum age and limitations apply) or age 16 for other benefits, who meet the current underwriting criteria. Your residency status will be taken into consideration as part of the underwriting process.
10 For more information on the products and benefits featured in this brochure, please talk to your adviser or refer to your policy document. All applications are subject to individual consideration. Special conditions, exclusions and premium loadings may apply to individual applications. Sovereign Assurance Company Limited, the policy insurer, is part of the Commonwealth Bank of Australia Group and is a related company of ASB Bank Limited and its subsidiaries (the Banking Group ). Neither the Banking Group, the Commonwealth Bank of Australia, nor any of their directors, nor any other person, guarantees Sovereign Assurance Company Limited or its subsidiaries, nor any of the products issued by Sovereign Assurance Company Limited or its subsidiaries.