Key Person Insurance

Nowadays there is an insurance policy for almost any scenario you can imagine. Business owners in particular need to consider the multitude of risks to their business. One of the most important questions to ask yourself is what would happen to your revenue if a key person was unable to work? Revenue is the lifeblood of any business.

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So who is a key person? In simple terms it is someone who is critical to the financial well being of your business. As an example, key people could include:

  • A Director or CEO
  • Partner in a partnership
  • Employee with a particular skill or technical expertise
  • Senior sales manager

Key people play an important role in generating the revenue for the business and/or obtaining business loans.

The death or disablement of a key person could have a significant impact on the revenue of the business. If this were to happen some of your options could include:

  • Use existing cash reserves
  • Draw down an existing loan facility
  • Sell some business assets
  • Deal with a period of reduced profit

Most business owners do not find any of the above options palatable and in many cases they are not even viable. This is why it is important to consider key person insurance as an option. Insurance can be used to replace lost revenue and the cost to hire a replacement person.

If your business has borrowed money (Business overdraft, secured loan from a bank or a loan from a Director) then in the event of the death or disablement of a key person, you may experience financial difficulties to meet loan repayments. Or worse, if the key person was a guarantor or was specified in the loan agreement the lender may call for the loan to be repaid in full.

In this scenario insurance can be used to protect the business against the debts but also to protect the guarantor and their estate against any claim over their personal assets.

Planning for the what if’s in life and business can go a long way to assisting you through difficult times. If you would like a risk assessment for your business and key people, please get in touch.

Want to talk insurance? Get in touch here for a chat.

This information contained in this document has been provided as general advice only. The contents of this document have been prepared without taking account of your personal objectives, financial situation or needs. You should, before making any decision regarding any information, strategies or products mentioned in this document, consult with your GPS Wealth Ltd financial adviser to consider whether it is appropriate having regard to your own objectives, financial situation and needs.