Safeguard your business with Key Person Insurance

Following on from last month, this article is aimed once again at business owners. As an employer, you know that running a great business means having a team of great people, but there may be one person who stands out as being a key player or central in the company's success. This person's knowledge, work, or overall contribution is considered uniquely valuable to the company. How would your business cope if that person were to pass away, or become seriously ill? 

What is Key Person Insurance?

This is a business-specific life insurance (also known as Business Protection) which can compensate a company for the financial loss and other consequences of the death or serious illness diagnosis of an important member of the business.

How does it work?

You can take out Key Person Insurance at any stage of your company's lifetime. You will pay a premium on a regular basis, based on the cover that is required. If the unexpected happens and this person dies, or becomes seriously ill, the policy will provide a lump sum to compensate for this event. This can be used to offset any financial losses incurred. It can also be used to contribute to bank loans where the key employee gave a personal guarantee, or to pay off loans made to the company by the key employees.

Product features

·         Protection: If a key employee dies, a cash sum is paid to help maintain the business.

·         Continuity: Can help minimise interruption to business activity.

·         Financial assistance: Can help with bank loans that involved the key person.

·         Staffing: Can help provide resources to find a suitable replacement for the employee.

Who is Key Person Insurance for?

This kind of life insurance can be taken out by a company of any size, where there is a need to protect against the loss of an extremely valued employee of high financial or strategic importance to the business. Deciding on the sum of money to insure the key person is dependent on the company and the reason for insuring that individual.

Why take out Key Person Insurance?

Availing of this kind of life insurance can give additional security to your business, as it safeguards against the loss of a key employee. As an employer, it can bring you peace of mind in the knowledge that you are protected from the financial fall-out due from the death or incapacity of a very important member of your staff.


Attention Business Owners……

If you own a percentage shareholding of any business, have you a plan in place in the event you pass away to ensure your estate or beneficiaries will get the full value of your shareholding? Can your company afford to compensate your estate/family or buy back this shareholding?

Shareholder/Directorship Protection is an arrangement between company directors, which allows for a deceased’s directors share of a company to be bought by the remaining Directors.

What are the advantages of Directorship Protection?

1. In the event of a director dying, the remaining directors participating in the agreement retain control and ownership of the company as they buy back the deceased director’s share.

2. The next of kin are bought out of the company by the remaining directors at market value and can therefore realise the cash value of the deceased’s share shortly after death.

3. The company/directors do not have to find the funds to cover the cost of the deceased shareholding.

4. It is a relatively straight forward shareholders plan.

How does this work?

There are two main parts to this arrangement:

1. The Legal Agreement between the directors to regulate the position on death.

2. The Life Assurance on each director’s life to provide the funds to the remaining directors to make a payment to the deceased director’s next of kin.

The solution outlined above can be achieved in one of two ways:

  • Personal Shareholder Protection - The shareholders enter into a personal agreement with each other to "buy out" a deceased shareholder's shares in the event of his/her death. To provide the funds to fulfil their personal obligation under the agreement, each shareholder personally effects life assurance cover which is payable to the surviving shareholders on his/her death. The proceeds of the life assurance policy are used to "buy out" the deceased's next of kin in line with the agreement.

  • Corporate Shareholder Protection - In this case the company enters into a put / call agreement with each of its shareholders to buy back shares from their personal representatives in the event of death. The company takes out a life assurance policy on each shareholder, to provide funds to enable the company to fulfil its obligation under the agreement. In the event of death, the proceeds of the life assurance policy are payable to the company, to be used to buy back shares from the deceased's next of kin.