Jock, Poh and yourself run a restaurant in Melbourne city. The three of you formed a company called JPY Pty Ltd to operate the business three years ago. All three of you are the directors and the shareholders of the company.

Jock has recently married and Poh recently broke up with her partner but is very close to her Mum. 

You are single with no personal or financial commitments now, other than your share of the liabilities in relation to the business. The value of the company was estimated to be $900,000. 

The company had taken out the following insurance policies:

1. Business interruption policy to cover the loss of profits caused by external factors e.g. power outages.
2. A total and permanent disability policy on each director’s life for $150,000. The funds were to be used to find a replacement person to run the restaurant and cover business overheads.
3. A key person policy which the company took out over the three directors. The policy was required because when the bank loaned the money to the company to set up the business, they wanted to ensure that if one of the key people ceased to work the funds would be sufficient under the policy to pay out the loan to the Bank. Under the terms of the loan the company had to pay the premiums on the insurance policy, but the policy was transferred to the Bank. The policy would pay out on either the death or total and permanent disablement of the any one of the directors.

The restaurant operates out of rented premises in Lonsdale Street opposite the QV centre.

The company was trading profitably prior to the lockdowns because of the COVID 19 outbreak.

Since March 2020, the business has suffered declining revenue but is still obligated to pay fixed costs. The company’s value has now decreased to $150,000.

This has created untold stress on all three of you. As result of Poh’s personal circumstances she suffered a stroke and has been diagnosed as totally and permanently disabled.

You sent the company’s insurance adviser the following queries.  

1. Are the premiums on the three polices deductible for taxation purposes for the company? 
2. Poh wants to sell her share of the company. Will any of the insurance proceeds be available to pay out Poh’s share of the company? 
3. The first policy covers interruption of the policy caused by external factors. Will this cover the loss of profits because of the COVID19 outbreak? How would you determine if the policy covers this event or not? 

REQUIRED:

As the insurance adviser please provide answers to the three queries raised by the company.