Key Person Insurance
The Key to Unlocking Business Security
Many organisations have insurance to protect against damage, theft or liability insurance. We always ask our clients what is their most important asset? That’s right, it’s their staff.
Key staff are the core of any organisation. In particular in SMEs, micro enterprises, start-ups and family businesses staff are the heart beat and the lifeblood of the organisation. Where staff headcount is under 5 losing a team member results in a loss of 20% of the team. The risks are similar in larger organisation particular if the staff member has a leadership role or specialist position.
What does key person insurance cover?
Our key person insurance coverage contains a group of plans to ensure your organisation’s security should long term illness or death impact your team. Insurance can’t replace a person but it can provide a lifeline to your organisation.
Four types of coverage
Our insurance offers 4 types of coverage. They are:
- Insurance to assist your business if a key team member is unable to work. This may include hiring or training a new team member
- Insurance to protect profits
- Insurance to protect shareholders or partnership interests
- Insurance for anyone involved in guaranteeing businesses loans or banking facilities
Who are your key staff?
This is often hard to pinpoint until the worst happens. We advise our clients to have a contingency plan in place for losing key staff. We recommend you look to insure the following staff members:
- Leaders – We are talking about the pivotal members who are leading your company and teams inside it
- Sales & key account holders - Sales is key to any organisation. If you are heavily dependent on key sales and account managers you should insure them
- Stakeholders – Owners, directors, founders, shareholders and partners
- Senior Managers – Think would the company be in same position tomorrow without them. If not, insure
Insuring these core staff will ensure your business’ safety and security in the future.
Protect Your Profits
Would losing a key staff member impact profit? The answer we hear regularly is yes. The inconvenience of losing a staff member may hit profits directly. Fortunately with our insurance plan you can insure against this.
Protect Shareholders and Partners
If long-term illness or death occurs to a partner or shareholder it can have a large impact on a company. This may lead to shares in your organisation being available on the open market. New shareholders could be detrimental to the company. Shareholder protection insurance will cover the the finance to buy the shares from the original shareholder or from his/her estate.
Insuring Personal Guarantees
Often with business bank loans and finance a person is required to be guarantor. This is even more common in SMEs and start-ups. If the guarantor becomes seriously ill or dies, key person insurance can pay off the loan. This can often be of huge relief to the guarantor and his/her family.
Don’t Risk Your Business
Would your business be at risk if a partner died or became seriously ill? It might be a question you don’t want to ask, but you should. If illness or death to a partner will impact your company you must insure against it.
20% of our claimants last year were 39 or younger
Although we don’t like to think about it, these are the challenges businesses face every day. Partnership insurance will ensure your business’ future.
What may happen if a partner becomes severely ill or dies?
In the unfortunate event a partner dies or suffers a serious illness they or their next of kin may request an immediate payment from the other partners. This can be crippling for an organisation. The payment can be extremely large and may include:
- Capital invested by the partner
- Undrawn profits
- Share of goodwill
- Unpaid loans
Partnership insurance will cover these significant costs.
Without insurance what are my options?
- You will be required to pay the above costs. This may require you to take a substantial personal loan
- In the situation where funding to cover the costs cannot be found the business may be required to be sold. The other alternative is that the partner’s next of kin becomes a partner. This may have implications for the strategic direction of the organisation
What does a partnership insurance policy include?
It has two key parts:
- Legal agreement - It has a legally binding contract that stipulates if a partner is unfortunate enough to die, the remaining partners will buy back the deceased’s shares. This will ensure the next of kin is obligated to sell their inherited shares
- Partnership Insurance – A partnership insurance plan will cover the cost to buy the deceased partner’s shares from their next of kin
What are the benefits to having a policy?
Security - Your business stays in your ownership
Lump Sum – A lump sum is provided to buy the deceased partner’s share
Peace of mind – Partners can rest assured their next of kin will be supported immediately in the event they die
Tax free – The lump sum paid to the next of kin is tax free and will not be subject to inheritance tax
Co-director insurance offers directors security in the event one of their co-directors dies. It will provide a lump some for the remaining directors to buy the deceased’s shares from their next of kin.
Benefits of co-director insurance
- Keep control of your organisation
- Avoid unqualified next of kins becoming directors
- Cover the cost of buying the deceased’s shares. No loans required
- Immediate security for the family of the deceased
- Can also cover serious illness.
JD Moneysave ltd trading as Moneysave is regulated by the Central Bank of Ireland