Key person insurance safeguards your business in the event of a key person’s death, disability  or significant medical event.

Why do I need Key Person Insurance?

The loss of a key person can have a devastating effect on the financial stability of the business. Key Person Insurance is designed to pay out a lump sum on the death or disability of the insured key person, during the length of the policy. It is paid as a lump sum and could significantly help the business to recover.

There are many ways to determine the need and quantify this in dollar and cents terms. The method used will be determined by what makes the person important to the business. Your business risk specialist will assist you in this process.

For instance, the person has given a personal guarantee for a business loan or has given a director’s loan to the business, then the need is simply the amount outstanding under the loan.

In other cases, when determining the needs of the business, it may also be necessary to take into account:

• The length of time it would take for the business to achieve the status quo prior to the key person’s death or disability;
• The funding required for a replacement recruit
• Anticipated profit reduction and/or
• Distribution to investors

Some of the factors which must be considered when determining needs are:

• Possible loss of customers
• Lead time for replacement to be effective
• Possible loss of production whilst training a new employee
• Additional cost of hiring a new employee
• Loss of credit rating
• Loss of credibility if current orders cannot be met
• Current loans may be called up
• Loss of goodwill