Key Person Insurance
Every business has key people who are critical to its function. Without these people the business may struggle to survive. Unfortunately, circumstances such as injury, illness or death can mean that key people are lost, leaving the business in a vulnerable position. This is why Key Person Insurance is essential.
What is key person insurance?
Key Person Insurance protects the business from the loss of key people. It is similar to Life Insurance, with the main difference being the ownership structure and purpose of the policy. Life Insurance is owned by the individual with benefits paid to the insureds’ nominated beneficiary, whereas Key Person Insurance is owned by the business with all benefits paid to the business in the event of a claim.
Does my business need key person insurance?
Small, medium and large businesses all benefit from Key Person Insurance. For larger organisations, it can ease the financial losses incurred when a key person dies.
For smaller businesses, it can often be an important factor in the survival of the business, particularly where the person lost is an owner, founder or partner.
Often the loss of key people results in the loss of lucrative business relationships and supplier/client confidence. Key Person Insurance can help ease the business through this difficult transitionary period.
Policies are available to cover unfortunate events such as Total and Permanent Disability (TPD), Trauma (illness/injury), or Death of an employee.
How much do I need?
This depends on your business and how much money your business would need to survive the loss of a Key Person. An Accountant or Financial Advisor can make this assessment.
This is a complicated area and depends upon the ownership structure and purpose for which the insurance was taken out (capital or revenue). We recommend that you obtain professional advice, however as a general guide:
Where the insurance is for revenue purposes, the premiums are tax deductible and the benefits are assessable.
Where the insurance is for a capital purpose, the premiums are not deductible and the benefits are not assessable, however there may be Capital Gains Tax implications.