Financial Protection

Key person insurance is effected where the long-term absence through accident or ill health, or death of an individual, will have a severe detrimental effect on the profits of the business.

This differs from shareholder protection as it is effected to cover the cost of replacing the intellectual or physical skills that contribute to the success of the business and the financial impact the loss of such skills would create. Clearly such cover may be considered for shareholders as they are often founders of a business and are in essence ‘what make the business tick’.

As the situation arises, key employees should also be protected, to provide the business ‘breathing space’ and the ability to endure the downturn in profits that could ensue. This allows the Company time to seek out the right replacement and to cover recruitment costs, which alone can be quite high.

Key person insurance can be life cover only or a combination of life & ill health benefits, such as critical illness or income protection benefits. The structure would, of course, be determined by the effect in each situation and because of this, such cover is often subject to financial underwriting in addition to the usual medical underwriting process.