Key Person Insurance Cover

Key Person Insurance Cover.

Case Study.

The basic need (and basic solution) for Key Person Protection.

In every office, shop or factory in the country there is a notice proclaiming that the employer has taken out insurance to cover accidents to employees' at work. Every car or lorry owned by a business has to have at least the minimum level of insurance required by law. Most prudent business people will have arranged for insurance on the factory, office buildings, even on the desk at which they work.



But one valuable business asset is often left uninsured. Zurich believes that too few businesses across the UK have any insurance to cover the one eventuality that can literally mean the end of the business and the income it provides – the death or illness (including critical illness) of a Key Person (often called Key Man).

Whether the business in question is a partnership, a Limited Liability Partnership, a company, or even a sole trader, it is likely to have an individual, or individuals, crucial to its continued activities and prosperity.

Here is an example:

John is a successful businessman. He’s worked hard to build up his small, but profitable, manufacturing business that is run as a Private Limited Company. It’s recently expanded very fast, taking on new staff and installing a new IT package to help with financial management of the company. The bank has been very helpful and provided a temporary overdraft while the expansion takes place. Though he has fellow directors to share the load, John is the main shareholder and still spends long hours doing much of the work himself. He still deals with many of the business’s clients' on a personal basis.

Why John is a Key Person?

•  John’s staff rely on him for his experience.
•  John is, directly and indirectly, responsible for the majority of the business income.
•  His clients' trust him to meet their needs.
•  His suppliers' know that whilst he’s around, they will be paid.
•  The bank knows that whilst he’s around, its money is safe.

So, whilst the business runs as a company, it still has many of the practical characteristics of a sole tradership.

Some Potential Issues.

If John were to die, or suffer a serious illness needing time away from the business, what would happen to the business?

•  Staff could leave, fearing their jobs are at risk.
•  Valued clients' could be lost to rivals.
•  Suppliers' might require payment in advance.
•  The bank could call in the overdraft.
•  Revenue and profits would fall.

Potential Solution.

All this could be prevented if a suitable protection plan, or plans, existed to provide cash at a time when it’s most needed. This could enable the bank to be repaid, provide salaries and pay suppliers, replace lost revenue and perhaps even provide a temporary replacement for John (though he may be very difficult to replace!).

This would provide time. Time to build up the business again, or maintain its position and reputation, possibly while a buyer is found.

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