Key Person Insurance
Why Key Person Protection?
People are often a company's biggest asset and losing a key person can be very damaging. The business could be hit by a loss of profit, reduced sales, recruitment/training costs, or disruption to their plans.
That's why key person protection makes good business sense. To help reduce the financial impact on their business, your client can take out a life insurance plan, with or without optional critical illness cover, to cover the life of the key person. This plan is owned by the business, they pay the premiums and any pay out is made to the business if they find themselves in the unfortunate situation of needing to make a claim.
The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner. In a tragic situation, key person insurance gives the company some options other than immediate bankruptcy.
If the company is a sole proprietorship and employs just you and no other employees or has no other people who depend on it, then key person insurance isn't as necessary. You'll notice we didn't mention your family--don't confuse key person insurance with personal life insurance. If you have a spouse and/or children who depend on your income, then you should have personal life insurance for that purpose.
How do you determine who needs this insurance? Look at your business and think about who is irreplaceable in the short term. In many small businesses, it's the owner who holds the company together--he may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much stops.
How much key person insurance do you need? That depends on your business, but in general, you should get as much as you can afford. Then think of how much money your business would need to survive until it could replace the key person, come up to speed and get the business back on its feet. Buy a policy that fits into your budget and will address your short-term cash needs in case of tragedy.
If a shareholder, member or partner in your business were to die could you afford to purchase their share of the business? If not there could be significant implications for the future of the business. Share protection can help you protect the ownership of your business in this situation.
- What is Share Protection?
The loss of a business owner may destabilise a business and can quickly lead to financial difficulties. Share Protection allows the remaining partners, directors or members to remain in control of the business following the death of the business owner.
- How does Share Protection work?
In the event of a business owner dying or being diagnosed with a terminal or critical illness, share protection can provide a lump sum to the remaining business owners. This means that in the event of a valid claim being made during the length of the policy, the policy could pay out a lump sum to help purchase the deceased partners/directors/members interest in the business.
Why do I need Share Protection?
If a business owner dies with no share protection in place his or her share in the business may be passed to their family. This means that the surviving business owners could lose control of a proportion or, in some circumstances, all of the business. The family may choose to become involved in the ongoing running of business or could even sell their share to a competitor. A share protection policy can help avoid these issues.
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