Business Protection Calculator

Estimate the cover your NZ business needs in 2 minutes.

Which best describes your situation?

How the business protection calculator works

Business protection insurance keeps a company solvent when the people it depends on die or become unable to work. This calculator runs three different problems from one page, a sole trader whose business stops when they do, a business that would lose revenue with a key person, and a partnership that would have to buy out a departing owner's share, because the right sum insured is calculated completely differently in each case.

Mode one: sole trader wind-down

The sole trader mode estimates what it costs to close a New Zealand business down in an orderly way rather than what it costs to keep it running. It assumes a wind-down takes six months, subtracts the months your business could fund on its own, multiplies only the unfunded remainder by your monthly fixed costs, then adds your business debts and a $5,000 redundancy allowance for each person in the business other than you.

• Runway reduces the estimate. A business that can keep paying its costs for six months has already funded the whole wind-down window, so only debts and staff obligations remain. A business that stops the day you do has the full six months to fund.
• Until August 2026 this ran the other way: the tool took the greater of three months and your survivability answer, so a stronger business was told it needed more cover than a fragile one. That is fixed, and the figures for anyone who used the six-month answer before then were overstated.
• The six-month wind-down window exists because leases, contracts and notice periods rarely end on the day trading stops. It is a planning assumption, not a New Zealand statutory period.
• Business debts are added in full, on the basis that personal guarantees make the estate liable.
• Lost future profit is deliberately not included: this is a closing-costs figure, not a valuation. Annual revenue, annual profit and business type used to be collected here and were never used in the arithmetic, so the tool no longer asks for them.

Mode two: key person cover

Key person cover is calculated two ways and shown as a range, because no single method survives contact with a real business. Method A is a salary multiple: five times salary where a replacement would take up to six months, eight times up to twelve months, and ten times beyond that. Method B is revenue-based: annual revenue multiplied by the share of revenue that person influences, multiplied by the replacement period in years, plus 25% of salary for recruitment.

The headline number is the midpoint of the two methods. Where the two are far apart, the gap itself is the finding, it usually means the revenue-influence percentage is doing more work than the business owner expected.

Mode three: partner and shareholder buyout

The partnership mode sizes the cover to the money that has to change hands, which is your business value multiplied by the ownership percentage being bought out. A 50% shareholder in a business valued at $1,000,000 produces a $500,000 buyout need. The tool also flags the two structural gaps that make a buyout go wrong: no buy-sell agreement setting out the mechanism, and no insurance funding it.

• A buy-sell agreement without funding is a promise to find cash at the worst possible moment.
• Funding without an agreement leaves the surviving owners negotiating with an estate that has no obligation to sell.
• With more than three owners, cross-purchase arrangements where each owner insures the others proportionally are worth costing out.

Who owns the policy changes the answer

Business protection is a structuring exercise as much as a sizing exercise, because the same sum insured behaves differently depending on who owns the policy and who receives the proceeds. Key person cover is normally owned by and paid to the business so it can absorb the revenue loss, while buy-sell cover is arranged so the money reaches the people who have to buy the shares. Ownership also drives whether premiums are deductible and whether proceeds are taxable, and that is an accountant's question, not a calculator's.

The assumptions behind the numbers

The multiples and allowances used here are fixed planning figures held in the tool, not quotes, valuations or published New Zealand data. None of them has been reviewed by an actuary. They are:

• Sole trader wind-down assumes a six-month closing period, minus the months of runway you tell the tool the business has, with the remainder charged at your monthly fixed costs.
• Staff redundancy is allowed at $5,000 for each person in the business other than the owner. It is a flat allowance and does not read anyone's employment agreement.
• Key person Method A multiplies salary by 5, 8 or 10 depending on whether replacement takes up to 6 months, up to 12 months, or longer.
• Key person Method B adds 25% of salary as a recruitment cost on top of the revenue calculation.
• Partner buyout is business value multiplied by ownership percentage, with no discount for a minority holding and no control premium.
• Business value is taken as you enter it. The tool does not value a business, and a formal valuation will usually differ.
• No tax, no goodwill decay, no working-capital requirement and no existing business cover is netted off the result.

Common questions

How much key person insurance does a business need?

Two methods bracket the answer. A salary multiple of five to ten times reflects how long a replacement takes to find and become productive. A revenue method takes the share of revenue the person influences over the replacement period and adds recruitment cost at 25% of salary. Where the two disagree sharply, the revenue-influence estimate is usually the one to interrogate.

What is a buy-sell agreement and why does it need funding?

A buy-sell agreement is the contract that says what happens to an owner's share when they die, become disabled or leave, including who buys it and how the price is set. Insurance is what makes it executable: without funding, the surviving owners must find the buyout cash from reserves, a bank, or by selling assets under time pressure.

Are business insurance premiums tax-deductible in New Zealand?

It depends on who owns the policy and what the proceeds are for. Premiums for cover that replaces business revenue, such as key person cover written for revenue protection, are more likely to be deductible, with the proceeds taxable. Capital-purpose cover such as a shareholder buyout is generally treated the opposite way. Confirm the structure with your accountant before you apply.

Does a sole trader need business protection insurance?

A sole trader carries the whole exposure personally, because the business and the person are the same legal entity and personal guarantees make an estate liable for business debt. The calculator sizes that exposure as the unfunded part of a six-month wind-down, plus outstanding debt, plus a redundancy allowance for any staff, a figure most sole traders have never put a number on.

Should the business or the individual own the policy?

Key person cover is normally owned by the business, because the business is the party that suffers the revenue loss and needs the money. Buy-sell cover is arranged so proceeds reach whoever must purchase the shares, which may be the other owners personally or a trust. Ownership also determines deductibility and taxation, so decide it with an adviser and an accountant together.

Related calculators

• TPD calculator, covers the personal side when an owner can no longer work.

• Income protection calculator

  , models personal income loss for self-employed people and contractors.

• Trauma insurance calculator

  , sizes a lump sum for a recovery period a business owner has to fund.

Review your business exposure with an adviser · free, no obligation.

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