Key Person Insurance

What is it?

A key person insurance policy is taken out on a key employee in a business such as a director, founder or an employee with a highly specialised skill. The policy protects the company from financial loss should the employee die or become temporarily/permanently disabled in a manner that inhibits them from doing their work.

Why is it important?

Key person insurance is important because:

1. Cushions Profits: When a key person dies or becomes incapacitated, the company may experience a sharp decline in profits in the immediate period following such an event. The insurance policy cushions against this dip in profits during the transition.
2. Debt Clearance: The loss of a key person especially in specialised businesses can negatively impact incoming revenues and the company’s creditworthiness. The insurance policy payout can be used to settle business debts ensuring that the company remains viable whilst also rebuilding confidence with lenders.
3. Replacement Cost: Finding and recruiting a replacement for a specialist employee is expensive. The insurance can cover the costs of such a replacement.
4. Business Closure: In the worst-case option, where the business cannot continue without the key person, the insurance can help in winding down business operations.‍

An example would be a medical practice that loses their lead surgeon who currently was the only one with a particular qualification in the country. Having key person insurance is a financial safeguard and is proactive planning, ensuring that the medical practice can withstand the loss.

The type of cover and the level insured depend on many things such as ease of replacement, years left to retirement of the key person, the size of the business, the contribution factor of the key person to revenue and the current balance sheet strength.

At Firstlink, we will assist you through the process of determining the appropriate cover for your business. Talk to our team today on 0242744048/79, 0772666509 or 0771325208 to discuss more about this cover.