What is Key Person Insurance?
Key Person Insurance is the process of a business insuring itself against the financial loss it would suffer if a key person in their business died or was diagnosed with a critical illness. It is sometimes referred to as Key Man Insurance or Key Person Protection.
Who is a Key Person?
A key person is defined as an employee whose death or continued absence would seriously affect the profits of the business. Key people are individuals whose skills, knowledge, experience or leadership are vital to a business’ continued financial success.
Examples of a key person include, but are not limited to:
- Sales Director
- IT Specialist
- Managing Director
- Head of Product Development
- Technicians and R&D Personnel
In general, you should get as much Key Person Insurance as you can afford. Think of any key players to your business and what they bring to the table and about how much it is worth to ensure that if something were to happen to them, you’d be covered.
Why do I need Key Person Insurance?
The loss of a key person to your business can have a serious impact to your company’s finances as sales and profits begin to decrease and the workload increases for your remaining staff. This policy is designed to pay out a large lump sum of to help your business recover. The money can be used to help replace profit loss or finding and hiring a replacement. With many small and medium-sized companies dependent on a few specialist individuals, Key Person Insurance is designed to help protect your business.
How does Key Person Insurance work?
Key Person Insurance is life assurance and critical illness cover written on the life of a key person but owned by the business. This means that any money that is payable goes to the employer. The process involves the company paying the premiums when they are due in order to be the beneficiary of the policy. This applies to both Limited Companies and Limited Liability Partnerships. With a partnership, the policy is written on an own life basis and may be placed in trust for the benefit of the other partners.
When is the benefit received?
Once a claim has been made, the situation would be investigated, and the money will be arranged as soon as possible in order to ensure your company does not struggle of suffer from a financial loss.