Key Person Cover
Key person cover is loss of profits insurance that provides a company with the proceeds from an insurance policy so it can continue trading if a key person dies or becomes critically ill.
The company can decide how to use the proceeds which could include employing a permanent replacement if a key person dies or a temporarily replacement if a critically ill key person intends to return to work. It can also be used to repay a company loan.
Why is it important?
Companies readily take out insurance on their physical assets such as business premises, plant and machinery computers and vehicles. They do this so thy can afford to replace those assets and ultimately to minimise any business disruption which could lead to a loss of profits.
However companies often overlook the fact that a significant factor of its business is its employees. Most companies realise which employees are vital to its success so should consider the financial impact were one of these people to become critically ill.
Who is a key person?
A Key person is someone whose death or disability would have a serious impact on the companies profits. A business can have one or more employees whom make a vital contribution, the size of the individuals shareholding won’t necessarily indicate that they are a Key person. They could include:
- Have valuable sales contacts which might be lossed
- Are the founder and still the main driving force of the company
- Are a controlling Director who has personally guaranteed loans made to the bank. The bank may insist on life cover as a condition of the oan
- Heavily involved in the development of a new product, without them product launch could be delayed
- Are at the top of their profession and have been time consuming and expensive to recruit