What is Key Person Assurance?
The loss of a Key Person within a Company can have a dramatic effect on the profitability and the day to day running of the business. Key Person Assurance is not in itself a product but an application of insurance designed to maintain a company’s business profitability. It aims to provide the replacement costs of an individual whose loss (whether permanent or temporary) could have a significant impact on the company’s profits or turnover and which could
present itself through loss of:
• Technical skills/knowledge
• Financial arrangements
• Expansion opportunities or business projects
Why the need for Key Person Protection?
Any business could suffer a financial loss if a key employee was absent for a long period of time. This is in addition to the day-to-day problems that will occur within the company. Examples of how a Key Person Protection Plan could provide funds are:
• Maintain the value of the company
• Enable the company to recruit and train a replacement
• Repay outstanding loans
• Help ward off a takeover
• Pay for temporary staff
• Inject capital when morale is low
Who is a Key Person?
This can be subjective, but is really anyone whose skill, knowledge, leadership or experience contributes to the company’s continued financial success. To place a monetary value on an individual is difficult but that is not what selecting a sum assured for key person assurance is actually about. What is required is a monetary value, which will accurately reflect the impact of the loss of the individual on the company profits.
*Information correct as of 1st May 2016