Have you considered how your business would be financially impacted if a key person died unexpectedly, became totally and permanently disabled or suffered a critical illness?
At Gallagher, we're experts at protecting your business' most valuable asset: your people. We help you plan for these unexpected events, working with you to protect your assets, revenue and equity during a challenging time.
Key person insurance can protect your business from any adverse financial impacts following the 'unplanned exit' of a key person. This exit may be as a result of death, total and permanent disablement (TPD) or a traumatic illness such as a heart attack, stroke or cancer.
The types of key person insurance can include:
Your business likely has one or more key persons whose skill, knowledge, experience and leadership are critical to success of the business and whose exit is likely to have adverse financial impacts.
The most common example is a key employee who is directly responsible for bringing in sales. The following are also examples of key people:
There are three key areas that may be impacted by the unexpected loss of a key person:
The loss of a key person can have an adverse effect on profit, due to increased costs or lower revenue. Key person insurance proceeds are designed to offset the loss of revenue that the key person would have generated and/or to pay the extra costs incurred in finding and training a suitable replacement. Either way, the profitability of the business can be maintained, and the business stabilised. The specific ways profitability can be affected are:
Consider the impact of the loss of a key person on loan accounts, personal guarantees and other debt. Key person insurance provides the business with proceeds which can be used to repay debts, easing the financial burden on the business at a critical point in time.
For example, in the case of a business where a business loan has been secured with the family home, key person insurance can be vital in ensuring this personal asset is protected should there be an unexpected loss of a key person that affects the business ability to repay the loan.
If a shareholder dies, their equity may pass to their family who may not be actively involved in the business. This can pose significant challenges and impact day-to-day operations. A buy/sell agreement and appropriate insurance funding can help avoid this situation by providing the business with funding to buy out the deceased shareholder's family.
We follow a structured process to help you align your people strategy with your overall business goals:
Having the right cover, in the right place, at the right time can make all the difference when it counts — helping your business and your family cope financially if something unexpected were to occur.
