KEY PERSON COVER
PROTECTING YOUR INCOME
Businesses often heavily rely on the contribution of one or more key employees, making them financially vulnerable if these people were to die or become unable to work due to illness.
Key Person Protection is an insurance policy written on the life of a key employee or employees, without whom company profits would be significantly affected, for example, a top sales person or a person with valuable technical expertise. If such an employee were to die or be diagnosed with a critical illness, the business would be seriously financially affected by their absence.
Key Person Protection either pays out a benefit equivalent to the loss of profit that incurred by the loss of the key person, or it finances the recruitment of a replacement staff member.
Limited Companies and Limited Liability Partnerships
Key Person cover is set up and owned by the firm on a 'life of another' basis. For key persons who are directors of limited companies, an alternative method is for the key person to have a policy on their own life, but held in trust for the other directors. In the event of a claim, the directors can use the proceeds to compensate the company for the loss of the Key Person. Typically, for tax-efficient reasons, they would lend the proceeds to the company in the form of directors' loans.
In the case of a partnership that does not have its own legal identity, Key Person cover can be arranged in one of two ways:
1. For a partner of the business, an own life policy held in trust for the other partners is an effective way of compensating the business
2. For employees of partnerships, one or more of the partners would have to take out a policy on the key employee on a 'life of another' basis.
Where there are a relatively small number of partners, they can each effect a 'life of another' policy in an amount proportionate to their loss if the Key Person were no longer there.
Our specialist advisers can tailor the optimum plan to your business needs.