Why do I need Key Person Insurance?
Many businesses have key people who are essential to the running of the enterprise. Management teams must consider what effect illness or death of a key person could have in terms of income, profits or operating efficiency of the business.
• Important skills and knowledge could be lost in an instant
• Any potential replacement would take time to find and settle in
• Depending on how much of the business was generated by that person, turnover may suffer and client relationships could become lost.
If you find yourself in this scenarios it could have a detrimental impact to your turnover and profits. A key person policy can protect your business from such impacts.
There are two solutions when it comes to key person protection for companies:
1) Life of another
Using this plan the company takes out insurance on the life of the key person. Benefits of the plan will be paid directly to the company if the key person is unable to fulfil his or her role due to illness or death. The funds may be essential to meet costs until a replacement can be recruited. Or the funds can pay for a temporary replacement in the case of critical illness where the person is expected to return to work. In addition, lost profits can be replaced.
2) Own life in trust
If the person is a shareholding director, they can take out an insurance plan on their own life and write it under trust. The other shareholders would be the beneficiaries of the trust. The other shareholders will receive the proceeds of the plan from the trustees in the event of the key person suffering critical illness or dying. If required the other shareholders can inject additional capital into the business.
How do we work out the value of the key person to our business?
Aspire Financial Services can provide the necessary advice on this, not only helping you make the calculation of the employee’s value to your business, but will also advise on the type of trust to set up. We work closely with the major providers in the UK and can involve them in the process if required.
Please call for a free 30-minute consultation to find out how we could help you to put key person insurance in place.