The Importance of Key Person Insurance

The most valuable resource of any business is its staff and in particular its key people.

In your business a key person may be the business owner, an employee, or a supplier to the business. A key person is anyone whose absence, or loss, from the business would have a significant negative impact on the business.

Loss of key staff can affect every aspect of your business – revenue, profit, goodwill and ultimately the value of your business.

Key person insurance can protect your business in the event that an important employee (or other key person) leaves the business as a result of disability, critical illness or death.

Key person insurance provides an amount of money for revenue purposes, to protect against reduced sales or profit, or a capital purpose such as paying off a loan. You may have other avenues open to you, to address the absence of a key person, such as additional borrowing, capital injections from shareholders or selling assets. But how realistic are these and could they be done quickly to provide the much needed funds? Key person insurance policies can be effected quickly, meaning your business can continue operating and maintain its value.

Types of Insurance

There are generally three types of risks that can be covered by key person insurance. You can take out cover for the death, total and permanent disablement (TPD) and trauma of a key person.

As everyone’s circumstances are different you should speak to your risk adviser about what types of cover are suitable for your business, and how the insurance package should be structured.

Ownership of the Policy

Key person insurance is often owned by the business, as the business is generally the entity that will require the proceeds of the policy.

In some circumstances key person insurance may be owned by a lender to the business, or the guarantor of business debt. You should discuss ownership options, and their implications, with your risk adviser accountant, and lawyer.

The Importance of Getting the Right Information

You don’t need to make decisions about key person insurance on your own.

Designing an effective key person insurance package requires your risk adviser, accountant and solicitor to work together. Each professional brings their own unique skill sets.

While we cannot provide advice can assist with the implementation of insurances once you know what you need.

General Advice Warning:

The information contained within this website does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances or you may make a decision that is not in your best interests.