If you are running a business, you are no doubt aware that there are many different types of insurance a business owner needs to consider. Some insurance are compulsory, such as public liability and workers’ compensation. Other insurances such as comprehensive motor or fire insurance, although not compulsory by law, are considered mandatory by most business owners.
One type of insurance often neglected by business owners is Key Person Insurance. Key person insurance, often called keyman insurance, includes income protection, life and total and permanent disability insurance which insures a business against the death or incapacitation of a key employee, usually an executive, partner or a staff member with specific skill that is key to the operation of the business.
It may be used by both large companies and small partnerships alike.
Key Person policies are owned by the business or partnership with the aim being to protect the business against losses incurred should the key person be unable to fulfill their role due to accident, illness or death. The actual business losses are not indemnified by Key Person Insurance, but rather a lump sum payment as specified on the policy is paid to the business.
The cover required is usually determined by the size of the business and the financial impact that the loss of a Key Person will have on the business. The sum insured can range between $500,000 and $10 million of cover. Points to consider include when deciding the amount to cover include:
• What will be the cost to replace this person?
• Will their loss impact earnings and if so, by how much and for how long?
• Will their loss impact relationships with clients and other important contacts?
• Will their loss impact staff moral and performance?
• How soon will their replacement offset the negative impact of the loss of the Key Person?
• What is the value of the Key Person’s equity in the business / partnership?
A business can take out a Key Man Insurance policy on any employee. It is done to offset the costs of hiring and / or training a replacement plus the losses a business is likely to incur without the business contribution of the person covered.
Partners may use Key Person Insurance to protect each partner. If one partner passes away, the funds provided by the Key Person Insurance could be used to purchase the shares in the business from the family of the deceased partner.
At Make A Difference Insurance, personal insurance for business owners is our specialty. Our business in itself has 3 trusts, 4 companies and a partnership so we’re well and truly across all the issues you face to make purchasing life insurance a hassle free and streamlined process. We understand the effort and personal sacrifice required to build and run a business. We also understand how important it is to protect your business from the loss of a key employee or partner.
Contact us today to discuss how Key Person insurance can help your business grow secure in the knowledge that it will be protected in the unfortunate that death, accident or illness should strike your most valuable employees.