Key Person Insurance, also known as Key Man Insurance, is an insurance policy that is taken out on the life of a key employee within a business. It works to protect businesses from losses should a key staff member (one integral to the success of that business) be incapacitated through death, illness or a significant traumatic occurrence. Proceeds of such an insurance payout are often put towards:
- finding a replacement
- replacing the revenue generated by the key person
- clearing debts
- distributing money to investors
- paying severance to remaining employees in the event of business closure.
If your business is relies on one individual to provide innovation, handle important client relationships or manage the internal daily operations of the business, you should consider Key Person Insurance.
If your company is a sole proprietorship then you probably don’t require key person insurance. It could be pertinent, however, to consider personal Life insurance or Income Protection to protect you and your family.
If your company is a little more structured and you feel your business may be at risk, here are some points you should consider when determining your business’s need for Key Person Insurance:
- Categorize the key people in your business
- Approximate how much revenue they are responsible for creating
- Identify who fosters the relationships with your clients and consider whether their rapport be replaced
- List which employees have the most impact when they go on annual leave or sick leave
- Depending on the person’s experience, they may be very difficult to replace. Consider how long will it take to replace them and the revenue lost at this time.
Owning a successful business and watching it grow is an exciting process. When everything is working smoothly it is easy to forget the risks that business owners face.
If you would like some more information regarding Key Person Insurance, please don’t hesitate to contact us for an obligation-free chat.
Call us today.
