A key person insurance policy, such as a key person protection, helps safeguard a company against the financial impact of death, terminal illness (if the life expectancy is less than 12 months), or a specified critical illness (if chosen for an extra cost at the outset) of a key person.
Policy proceeds are paid directly to the businesses to help replace the key person and help cover any profit loss. The policy proceeds could help your business to continue trading.
Key person insurance is where a business insures itself against the financial loss it would suffer in this eventuality. It’s about giving your shareholders the confidence that your business can survive and thrive even in the event of losing a key person through death or a specified critical illness.
A key person insurance policy should be considered if any loans or financial commitments depend on that person, whether their loss would have an impact on sales, or whether their absence would impact on future planning.
A key person would be defined as someone who plays a vital role in the financial success of a company. It may be a founder or the person who sets the business strategy, a salesman responsible for bringing in profitable business. It might even be your technology guru who knows things no one else in the company understands.