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Key Person Insurance

Key Person Insurance

Also known as ‘Key Man Insurance’, this is a vital component of business protection. While there isn’t a specific legal definition for ‘key person insurance,’ it can be defined as a type of business insurance designed to safeguard a company from potential financial setbacks resulting from the death or prolonged incapacity of a crucial individual identified in the policy.

This coverage helps mitigate the financial strain caused by the potential loss of revenue, recruitment and training costs for replacements, and any outstanding debts or obligations linked to the key person.

Our Key Person Insurance Expertise

Who Qualifies as a Key Person?

Key persons are individuals whose knowledge, skills, or expertise are crucial to the operations, profitability, or growth of your business. They can include owners, key executives, top salespeople, or employees with specialised knowledge.

How Does It Work?

When a key person covered by the policy passes away or becomes unable to work due to a critical illness or injury, the insurance policy pays out a lump sum to the business. This payout helps the company manage financial challenges resulting from the loss of the key person.

Expenses Covered

Key Person Insurance can cover a range of expenses, including hiring and training replacements, covering lost revenue, repaying debts, and stabilising the business during a transition period.

Protecting Your Business’ Assets

Is It Tax-Deductible for My Business?

In many cases, the premiums paid for Key Person Insurance are not tax-deductible. However, the proceeds from the policy are typically tax-free, making it a tax-efficient way to protect your business.

How Do I Determine the Coverage Amount?

The coverage amount should reflect the financial impact the loss of a key person would have on your business. Factors to consider include the individual’s role, their contributions to revenue, and the cost of finding and training a replacement.

Changing the Beneficiary

The business can typically choose the beneficiary, and it is often the company itself. This allows the business to use the proceeds to cover expenses and financial losses.

Is It a One-Time Purchase?

Key Person Insurance can be adjusted to meet your business’s changing needs. As your business grows or the importance of certain individuals evolves, you can review and update your coverage accordingly.

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