Would your business survive if a ‘key person’ such as an owner, founder, or essential employee passed away? This is a very difficult, but extremely important question to ask.
Businesses are faced with a range of challenges when they lose an integral member of the team who they depend on. Losing a key person can result in the loss of in-depth knowledge and a valuable skillset, productivity, strategic initiatives and revenue as well as the relationships they have built with valuable customers.
If losing a key employee would affect your ability to continue business operations, Key Person Insurance may be relevant for you.
What is Key Person Insurance?
Key Person Insurance is life insurance on the key person (or persons) in a business. It is only relevant for people who are crucial to the business that the company absolutely cannot operate without. These people can be insured with this form of life insurance, where the company receives an insurance payout if that person dies unexpectedly.
This cover is so important because, in small companies in particular, the death of a key person can mean the death of the entire company. Key person insurance can help the company survive. With a financial payout, the company is in a much better position to continue as the insurance proceeds can cover expenses until a replacement person is found. Alternatively, if the company cannot continue, the funds can help pay off businesss debts, distribute money to investors and pay severance to employees so that it can shut down in an orderly manner, rather than having to declare bankruptcy.
Does Your Business Need Key Person Insurance?
If you are the only employee in your business, generally speaking, you will not need Key Person Insurance, and should consider other forms of life insurance to protect your assets.
If you are an SME with employees, Key Person Insurance may be necessary for you, particularly if there are people within the business whose absence would result in operations grinding to a halt. In order to determine who in your business may need the insurance, look at your team and think about who is irreplaceable. In most small businesses, this will be the owner or an employee who holds the company together by assuming responsibilities for keeping the books, managing the employees, handling the key customers etc.
The amount of cover you will need depends on the specifics of your business, but in general, you should get as much as you can afford. Your insurance advisor can help you compare rates and policies from different insurers to find the most appropriate cover for you. Contact us for more information.
Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.
The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.