Insuring your end goal

Straight long stretch of road

As you would have read in my previous posts, I get great satisfaction from assisting people in getting to where they want to be.

You will hear me mention the word ‘why’ a lot, for example, “Why do you do what you do?” Generate passive income? Buy that new boat? Maybe you want to create financial freedom for you and your family.

But what happens in the situation where you are in business with someone else or there are multiple people involved in a venture? Multiple people amounts to multiple ‘whys.’ We see a lot of partnerships being developed where people pool their resources; working together to invest in property. With the current property prices in Auckland and the current Loan-to-Value Ratio (LVR) restrictions in place, it is easy to see why people are drawn to the idea of working together. With this in mind, there are some things to consider when getting into a property venture involving multiple people.

When setting up any type of business partnership which takes on debt, it is essential to get accurate and correct advice around the best lending structure. It is also vital to seek advice and implement a shareholder agreement when investing in the property market or when getting involved in any business partnership. Shareholder agreements are kind of like a business pre-nuptial agreement. It is always better to go through the process early so the parties can quickly establish any issues they may face and discuss them on amicable terms. It is important to enter into any agreement with the end goal in sight. Think of the big picture; the reason you are investing in property.

Your ‘WHYS.’

If, for example, you want to invest in property to generate an income for when you retire but your business partner wants to buy the latest Tesla as soon as possible, there could be issues down the road. I am not saying you need the same goals, but you need to at least know where each of you are at so you can plan appropriately. It is really important you get the correct advice from a knowledgeable property lawyer, accountant and insurance adviser.

The team at squirrel can point you in the right direction. Separate to the shareholder agreement is the buy sell agreement. The purchase is important because it provides the means to look after your family and the business venture. The buy/sell is usually backed by a life insurance policy. The point of the buy/sell is to set up an agreement with the other shareholders so if something happens to one of you, the family of that shareholder will be fairly remunerated and the company will still be able to continue business as usual with as little disruption as possible.

There are many different options with setting up these agreements and we have a team of advisers here who specialise in facilitating these kinds of arrangements among investors. Any time you take on debt, such as a big mortgage, it is important that you get the correct advice and understand the risk involved. The average person spends a lot of money over their lifetime on insurance. After the mortgage it would be the second biggest expense for many families. Structuring a mortgage correctly can save you a lot of money over your lifetime. It’s obviously a key reason to use an expert to assist in structuring your lending. In that same way, structuring your insurance more personally will also save you a lot of money by constructing your policies in a way which works for you and takes care of the people and possessions that matter most to you.

It all starts with your end goal and works backwards from there. Once you have passive income and financial freedom you might not need Life Insurance. For example, you may be in a fortunate position where you have the means to cater to any urgent surgeries already. However, while you are on the journey to achieving your goals and meeting the purpose of your ‘whys’ you will probably need cover, especially if you have a family.