Key Person Protection (AKA Key Person Insurance/Key Man Insurance)

Every business has individuals whose skill, knowledge, experience or leadership plays a key role in the financial success of a company. A key person could be one or more people within the business such as a chairman, marketing manager, sales director, computer specialist or anyone else that has a significant role in the company. To insure a particular employee, a business must first prove their death or inability to work would lead to one or more of the following:

• Loss of profits

• Having to recruit or train a replacement

• Important business contacts lost if the key person isn’t there to manage relationships

• Suppliers or customers losing confidence in the business

The business owner will then pay the premiums for that particular employee and most small to medium sized companies will have at least one member of staff who are crucial to their continued success. In the event of the employee's death, a lump sum will be paid out to help replace lost profit or find a new replacement. Certain policies also cover critical illness too, so if the person is unable to work for a period of time due to something like a stroke or heart attack, the business owner would receive a payout to cover their absence.  

Calculating exactly how much cover you need can be a tricky task as it can be difficult to put a figure on precisely how much your business would lose should you lose an employee. It’s therefore important to seek professional advice in order to find a policy that best suits the individual needs of your company.

Shareholder Protection Insurance

Regardless of what industry you operate in, one of the most damaging events a business can fall victim to is the death of a major stakeholder. Shareholder protection is a form of insurance that allows the remaining partners, shareholding directors or members to remain in control of the business following the death of an owner. Whether you need this or not depends on whether you could afford to purchase their share of the business if they died. If not, there could be serious financial implications for the entire future of your business and share protection can help protect against this.

In the event of a shareholder dying or becoming terminally ill, a lump sum will be paid out to the remaining shareholders to help with the purchase of the deceased partner’s interest in the business.

The three main types of shareholder protection policies in the UK are:

Life of Another Policy - Widely used by businesses who are run by just two shareholders, both parties apply for a policy on the life of each other that represents the current value of their respective shares. Each shareholder pays the premium out of their own pocket to avoid tax and national insurance, with a lump sum being paid out to the surviving policyholder who can then use the funds to to purchase shares from the deceased’s family or estate.

Company Share Purchase - This type of policy means the company itself, rather than individual shareholders, purchase shares back from a deceased shareholder. The company will often take out policies on all shareholders matching the value of each investor’s shares. The company is also responsible for paying the premiums meaning they will receive any funds in the event of a shareholder’s death. Generally, this is quite a long and complex process and it’s advisable to engage lawyers and tax advisers to ensure the policies are compliant.

Own Life Policy (held under business trust) - Used by small businesses and multinational corporations alike, this policy sees each shareholder take out their own policy held under a business trust. This should equal the value of their shares and be drawn up until their death or retirement at which point they will divided equally among surviving shareholders.

Business Loan Protection

Many companies have outstanding borrowing such as venture capital loans, commercial mortgages or directors loans and personal guarantees which can be covered with business loan protection. Essentially, this type of cover can help you repay any of these should one of the business owners die or suffer a critical illness. Working out the cover means finding out exactly who is liable for the repayment of the loan before arranging cover for each owner based on that value. You can select a decreasing or fixed value sum assured, but the term of the cover will have to match the length of the loan. When a claim is made, the proceeds are paid to the policyholder who can either pay off the loan in full or continue payments according to the initial agreement with the lender.  

Exactly what kind of policy you need will depend on the type of business you own and how many shareholders there are, which is where we can help. As independent insurance brokers, we can help you find the ideal business protection insurance to ensure the stability and longevity of your company is not compromised.

Feel free to get in touch with us and arrange a free consultation.