Key Person Insurance
Many Australian businesses ignore, or are unaware of, the financial impact that the loss of an owner, partner, majority shareholder or high level employee can have on the financial viability of a business.
Key person insurance helps provide financial compensation in the event that an essential member of your business was to unexpectedly die or become incapacitated.
Insurance is always purchased to cover public liability, professional indemnity, building and equipment. You would also not think twice about ensuring you had great security of your physical premises, and anti-virus software on all your IT. Yet, human assets, the most important asset of any business, are often overlooked when it comes to insurance.
We all know that good people are hard to find, especially those that have your corporate and specialist knowledge. How long would it take you to replace your key people, and at what cost? Key Person Insurance is there to help bridge this gap.
A Key person is someone whose death, disablement or critical illness could have a significant negative impact on your business. This could include, but is not limited to:
- The day to day operations
- Complete loss of a skill set
- Impairment of credit rating, or ability to secure financing
- Dependence on particular projects
Key Person insurance provides a source of funds to be used to offset any unforeseen losses or costs to the business, should a key person be critically injured or killed. It can be used as a source of revenue to protect against loss of profits, or capital to help pay off business debts.
These funds can also be used to attract a highly qualified replacement for your key person, who undoubtedly will not come cheap.
Business Insurance – Buy/Sell
When more than one person own or run a business together, it is important to consider what would happen to the business if something happened to one of the business owners. Key Person insurance and Buy/Sell insurance are two types of business insurance which deal with compensation should something happen to one business partner.
Buy/Sell insurance is a cost effective way of funding the transfer of an asset from one person to another, where there has been a death, disablement, terminal illness or other major medical event. Basically, if one of these major events should happen, the remaining owner will usually want to buy the other partners interest in the business. Buy/Sell insurance helps provide money to fund this transfer. This also benefits the leaving partner, or their family, providing them with financial compensation for leaving the business, which can help them cope with their new circumstances, and relieve them from the responsibility of the business.
There are many questions to consider in the event of a business partner being removed unexpectedly from the business. Will family members be able to take over, do they have the skills to help, how much will the business pay a partner who is leaving for medical reasons, where will that money come from, these are only a few of the many questions which may arise.
A Business agreement which covers these contingencies is essential. When we discuss your needs for Buy/Sell insurance, we can also help you with the creation of a buy/sell agreement.
For a review of your business insurance requirements, please click here.