Key Man Insurance - Benefits to Business

When a key person in a business dies it can have a devastating financial effect. You can help safeguard your business against the death or critical illness of a key person with key person protection.

• What is Key Person Protection?
  
  Put simply, Key Person Protection (also known as key man insurance or key person insurance) is a business insuring itself against the financial loss it would suffer if a key person in their business died (or suffered a critical illness if chosen).
• How does Key Person Protection Work?
  
  Key Person Protection is a life assurance or life assurance and critical illness cover policy taken out to cover the life of a key person within your business. The policy is owned and paid for by the employer, so any pay out is payable to the employer.

Why do I need Key Person Protection?

The loss of a key person in your business could have a severe impact. The business could suffer badly, with sales and profits falling and increased workloads for the remaining staff.

Key Person Protection pays out a lump sum on the death of the insured key person. It is paid as a lump sum and could significantly help the business to recover. The proceeds can be used to replace lost profit or finding and hiring a replacement.

Who is a Key Person?

A key person is an individual whose skill, knowledge, experience or leadership contributes to the financial success of a business. A key person could be one of a number of people within the business, such as the:

• Chairman
• Managing director
• Marketing manager
• Computer specialist
• Sales manager

Anyone whose death could lead to financial loss for the business through:

• Loss of profits
• Having to recruit or train a replacement
• Important business contacts lost of the key person is not there to maintain relationships
• Customers and suppliers losing confidence in the business

How do we prove an employee is a Key Person?

For a business to insure one of it’s employees it must be able to demonstrate that it will suffer a financial loss as a result of death, terminal or critical illness of that employee. Most small and medium sized business will have one or more employees who are crucial to their continued success.

Who pays the premiums?

• Where a company, LLP or Scottish partnership is the owner of the life policy it pays the premiums
• Where the policy is for a partnership, the partnership would normally pay the premiums.
• Where the policy is for a sole trader, the sole trader as the owner of the policy would pay the premiums.

What type of policies are available?

You can choose between a life cover policy or a life and critical illness cover policy.

Your decision depends on what circumstances are involved and the events the business want to insure the key person against. The effect of suffering a critical illness can have the same devastating effects on the business as the death of a key person. Therefore, life and critical illness cover may be a suitable option.

What happens if a Key Person leaves or retires?

If a key person were to leave or retire before the end of the policy a limited company, LLP or Scottish Partnership could do one of the following:

• Stop paying the premiums and the policy would end
• Continue paying the premiums until the end of the term and in the event of claim the business would receive a capital sum
• Assign the policy to the key person who would then become the legal owner of the policy and could continue paying the premiums.

Traditional English Partnerships and sole traders, a have different options if the key person leaves or retires. 

For further Information, please feel free to contact Ian Harlock cert PFS