Keyperson Insurance

What is Keyperson Insurance?

A keyperson is a person who is critical to the continuance of your business. Typically they will be one or more of the following:

  • Company director, Partner or owner: The person who steers your business.
  • Designer: The person whose creative flair generates new products.
  • Salesman: Your critical conduit to the marketplace.
  • Strategist: The person who provides the drive and direction for the company

Without one or more of these critical people your business could struggle. You may find that its direction and control has been lost. Your ability to get product to market could be affected. You could lose market share to your competition. Ultimately you could lose sales, turnover, profit, and the viability of your company.

Keyperson insurance and shareholder insurance are designed to help you overcome the effects of losing one or more of your key staff. This provides an income stream to your company whilst the person is incapacitated, or while you are recruiting or training a new staff member.

Your business is very important to you and the other owners of the business. Often a successful business is dependent on a single person. Is yours?

  • What would happen if this "keyperson" were to fall ill?
  • What would happen if your keyperson were to suffer long term illness?
  • Or even worse what would happen if your keyperson were to die?
  • Will the future of your company or business hang in the balance between success and failure?

Keyperson protection and shareholder insurance will not prevent the loss of crucial people in your organisation, but these insurances can help your business recover during the period when your key personnel are not able to work, or to train or recruit a replacement.

The keyperson protection falls into two broad categories: protecting your key personnel and protecting your profits. This is the same whether you are a Limited company, a partnership or a sole trader.

You have insurance on your buildings, public liability insurance. You are protected from fire and accidental damage to your property, so why not insure your most valuable company assets your key staff members?

Keyperson insurance to protect your company profits

With the loss of a keyperson the effectiveness of your company can suffer. Having lost a key employee in your company this can have a knock-on effect and your sales and profits could be reduced.

Your profits can be protected with a keyperson protection plan which combines both death and critical illness benefit. This will be paid if the person insured suffers a recognised critical illness or dies.

The benefits from a keyperson insurance policy can provide your company with the funding required to find a suitable replacement for the key person, or to restructure the company. It can also alleviate the potential loss of goodwill that has been attracted by that person or minimise the disruption of unfinished projects.

Keyperson Insurance For Your Company

Your company may well be insured against a number of physical risks, such as buildings and contents insurance, you will also be insured for public liability, and possibly professional indemnity, but what about the key players in your business.

A "keyperson" is a person who is critical to the continuance of your business. If the loss of this person would cause the company to have difficulties then you should consider keyperson insurance to cover you and allow the business to continue functioning.

Keyperson insurance is not just for specific individuals though. What happens if a company director becomes critically ill, or dies? Keyperson insurance can also protect the shareholders in a company.

What happens if a person who has guaranteed a business loan dies? Normally you would be expected to repay the loan on their death. This is another area covered by keyperson insurance.

Protection of your profits can be arranged using keyperson insurance so that the company can continue operating if one or more keymen become incapacitated.

Keyperson Insurance For Loan Guarantors

When taking out a business loan the lender will often require the loan to be guaranteed in some way. If the person guaranteeing the loan becomes ill or dies the company faces potential financial ruin if the loan has to be repaid immediately.

If a company director, employee or someone else has provided a guarantee for a loan the bank or lender will have the first call on their estate should they not have confidence in the company and require the loan to be repaid. This can then leave the guarantor's dependents in financial difficulties if the company is unable to repay any loan outstanding.

In either circumstances the potential financial liabilities can be eradicated by taking out a keyperson insurance policy for the loan guarantor ensuring that should the worst happen the liability for the loan is covered.

Keyperson Insurance For Shareholders

Keyperson insurance for shareholders should properly be called shareholder insurance. This protects both the company and the shareholders from the possible effects of long term illness or death of a shareholder.

If a shareholder dies then their family may want to sell their stake in the company. This may result in the company being controlled by one of your competitors. You may find that the family members want to actually participate in the running of the company replacing the original shareholder against the wishes of the original shareholders.

Shareholders can be protected in a number of ways:

Primarily there should be a formal agreement drawn up defining what happens when a shareholder becomes incapacitated. This then formally gives the remaining shareholders the right to buy the shares from the original shareholder or their estate.

Having decided what happens with the shares, then shareholder insurance policies can be taken out for the value of the share purchase for each of the shareholders in the company.

This way you will have provided a contingency to allow the business to continue as originally intended without the possibility of a takeover should the worst happen and you lose a major shareholder.

Keyperson Insurance For Partnerships

A partnership shares many of the risks that a company does. In general the business is managed and run jointly by the partners. This normally means that the loss of a partner hits the business harder than the loss of a director.

It is essential to protect the key members of the partnership staff, ensuring that in the event of the loss of one member the partnership can continue and overcome the loss.

The individual partners should have protection to the value of their share in the business. This will allow the partnership to function without loss of profitability regardless of the state of health of any one partner.

Keyperson insurance can also be used, in conjunction with a legal agreement, to protect the partnership from disruption or dissolvement in the event of the death or critical illness of one of the partners.

Keyperson insurance for partners protects both the partners and the employees from the possible effects of long-term illness.

If a partner is unable to continue working through the effects of a critical illness then the keyperson insurance policy (for critical illness) will pay a benefit into the partnership to compensate for the loss of contribution of the incapacitated partner.

Keyperson Insurance For Sole Traders

You may be a sole trader, but you are still running a business. Many sole traders employ additional staff either on a full time or part time basis. These staff are often close family members.

What happens if you become ill or die? What will happen to your business? What will happen to your family and your employees.

Although you are a sole trader you may have a member of staff that you rely on to perform a specific function without which your business would flounder or fail. Keyperson insurance can insure that person and protect your key personnel.

Keyperson insurance for sole traders can protect your family from financial ruin in the event of your death.

As a sole trader you have no income should you become ill. It is bad enough that you do not get paid when you have a few days off sick with the flu, but what happens if you become critically ill or disabled?

Many sole traders employ additional staff either on a full time or part time basis. These staff are often close family members. ?If this is the case then your inability to work will be compounded in the loss of earnings of your employees.

A keyperson insurance policy for a sole trader can provide an income should you become temporarily or permanently ill. It can also be arranged to provide income and cover your debts should you die.

Keyperson insurance can provide critical illness cover, death benefit, or a combination of both. This gives you the peace of mind that should anything happen to you then your dependants are protected.

When you run a business as a sole trader, you do not have the protection offered to individuals that a limited company provides. If you die then any debts that your business owes must be paid by your estate, before your dependants get any inheritance.

This can, obviously, place a great deal of stress on your family at a time when they least need it.

You can use a keyperson insurance policy to provide cover business debts you may have, relieving the financial pressure on your dependants.

Although you are a sole trader you may have a member of staff that you rely on to perform a specific function without which your business would flounder or fail. Keyperson insurance can insure that person and protect your key personnel.

This might be your buyer, surveyor, architect, or any of a number of different specialist skills. Whatever the function of the employee if you are not able to perform that task your business could be at risk.

Keyperson insurance could provide you with the cover to help compensate for the immediate loss of that person's day to day service. It can also help with the cost of recruiting and training a replacement.

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