Key Person Cover
Following last month’s article on the need for shareholder protection, this month we will switch our focus to Key Person Cover and how you can protect your business in the event of something happening to a Key Person.
Key Person insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two who are responsible for the profitability of the business. You need Key Person insurance on those people!
Here's how key man insurance works: A company purchases a life insurance policy on the key employee, pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies or has a critical illness, the company receives the insurance proceeds.
The purpose of key man insurance is to help the company survive the blow of losing the person who makes the business work. The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner. In a tragic situation, key man insurance gives the company some options other than immediate bankruptcy.
How do you determine who needs this insurance?
Look at your business and think about who is irreplaceable in the short term. In many small businesses it is the founder who holds the company together - he may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much stops.
If you would like further information, please contact Scott Robinson on 01548 856444 or email: Scott@sabrefinancial.co.uk
By Sabre Financial | Monday, September 26, 2016