Key Person Insurance

keyhandover Key Person Insurance Businesses or companies alike are usually successful as they leverage off particular competitive advantages.  In some situations a key person within an organisation may have vital knowledge, skills or job criteria that is  hard to replicate. Loss of that person may result in lost revenue, profits and the capital loss on the value of  the business should that key person suffer a major illness, injury or death.

Key person insurance is a type of Corporate-owned life insurance which insures an employer against the death or incapacitation of a so-called key employee, usually an executive or partner. It is used by both large companies and small partnerships alike.

Without insuring for the loss of that particular key person, the business may lose that edge and give ground to their competitors who are ever ready to acquire business and transact on obligations that your business cannot fulfil.

Key Person insurance protects businesses from the loss of individuals whose capital, knowledge, client base or experience are vital to the company.

There are two types of Key Person insurance:

1. Revenue protection

  • Replace potential loss of income
  • Loss would be reflected in the company’s “Profit and Loss” statement
  • Premiums may be tax deductible and proceeds are assessable for income tax

2. Capital protection

  • Replace loss of capital or repayment of debt and/or loss of goodwill
  • Loss would be reflected in the company’s “Balance Sheet”
  • Premiums are non-deductible and proceeds are usually not assessable for tax (exception is Trauma cover).

Smaller companies with partners may use it to protect each partner. For example, if a partner of a firm passes away, usually the other partner or partners need to purchase the shares in the business from the family of the deceased. Having insurance permits this to be more easily facilitated where the correct Buy/Sell Agreements are in place.

Buy/Sell Agreements are a written agreement the business enters into to determine each stakeholders’ plans should any of them unexpectedly suffer a major illness, injury or death. Without this in place, succession of the business is left open ended and unintended participation by beneficiaries may obstruct any existing business plans.

The cover required is usually determined by the size of the business and the person that is to be insured.

Do not leave it until it is too late, start the process today by contacting us, make an investment to protect and safeguard your future and those dependant on you.