Key Person Insurance can help fund the buyout of a business partner or other "key person" or their estate in the event of Death, Disability or Trauma.
What does it do?
Most businesses will have at least 1 but maybe 2 or more people who are key to the business operating successfully. Should these people suddenly be unable to continue in their position due to accident/illness of even death, the business will usually suffer financially. This is where appropriate key person insurance comes to the rescue.
Who is a Key Person?
A key person can be a business partner, business owner, manager, accountant or sales person with a business. Although any person whose knowledge, skills and expertise contribute to the continued profitability of the business, or the day to day running of the business, or the continued growth and reputation of a business could be a key person.
How much Key Person Insurance do I need?
To determine how much key Person insurance is required, you must firstly analyse what effect it would have on the business if that person where not there for a short term, or in fact if that person where unable to ever return. Factors would include, replacement for that position, training to up skill that new person in that position, possible downturn in profit and / or production, and the possibility that any bank loan or overdraft may be withdrawn or recalled by the bank.
There is no particular answer to how much is required, as all or some of the above factors will contribute to the final sum insured required. Your adviser will work through scenarios with you before making final recommendations.
How does the policy work?
The basic idea of Key Person Insurance is to provide a lump sum payment to the business on the loss of the key person through either death or disability. Care needs to be taken when setting up a policy as to what it is required for, capital or revenue purposes as taxation treatment at time of claim can significantly affect the final outcome.
Where to from here?
Following discussions with your adviser, they will provide written recommendations outlining the policies and sum insured, waiting periods and benefit periods designed to meet your current circumstances. Again care must be taken to understand the policies' definitions. From there, a personal medical statement is normally all that is required to have the application process started, however, sometimes depending on your medical history, blood tests or a medical appointment may be required. From there, your adviser will liaise with you through to the insurer issuing policy documents.
What happens if a claim is made?
In the event a claim is made, your adviser will try and make the process as simple as possible for you. Claim forms will need to be completed, identification documents and medical records / doctor’s report will need to be obtained, and your adviser will help with this and liaise with the insurer. The insurer has a dedicated claims team, and a claims assessor will be allocated to help you through this process.