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Insurance Policy Ownership – Have you got it right?

July 26, 2019

Insurance is about getting the right amount into the right hands at the right time.

If we have an insurance claim we want to know how much will be paid out and to whom. Any delays in payment are frustrating. It is important the documentation aligns with the desired outcome.

Recently two Chester Grey clients have undertaken insurance reviews of their business and personal insurance plans. In both cases the policy ownership was incorrectly assigned.

Issue 1

Policies to support the business were in the owner’s personal name rather than the business name. This puts in jeopardy the ability of the business to claim the premiums as an expense.

Furthermore, at claim time the funds will go to the policy owner rather than to the business. This could impact on the financial viability of the business as was as possible tax implications.

Issue 2

Personal insurance policy premiums were being claimed as a business expense. If a policy does not qualify as a business expense normal tax rules will apply.

This means, either:

  • The company claims a tax deduction for the insurance but must pay FBT on the value of the benefit provided to the employee ; or
  • The company does not claim a deduction and the premiums are recorded as drawings.

It is important to any business to have insurance. It is as important that the insurance documentation is owned by the correct entity so that you will get paid and not have any tax implications.

Chester Grey utilises Gerard Gill to assist with insurance reviews. If you are keen to confirm that your insurances are correctly owned contact Carole carole.smith@chestergrey.co.nz or call the office (09) 277 8278 to arrange for a review.