Key Person Cover

What happens to your business when that person gets sick and is unable to work? Generally the business would be in trouble so wouldn’t it be great if you could insure their contribution? It just so happens that you can.

Key Person insurance has a variety of names depending on the insurance company but they are all essentially the same, they all put money into the company when the main earner can’t earn through illness or injury. I think we can all see how that would be advantageous.

Let’s run an example … take a small company that has an owner/director who brings in the business and does the ‘income generating’ work, an admin assistant to keep the paperwork moving, a premises which is rented, a vehicle that is on lease, a business loan, and the usual office overheads from internet to window cleaning. The director is involved in a serious car accident and will be unable to work for at least 6 months. What will be left of the business by the time they are fit to work.

[ACC] may pay them up to 80% of their declared salary, [income protection] if they have it may top that up, and this might keep the home going but who pays the business bills? Here is where key person cover comes in. The insurer will pay into the business after 4 weeks and this can be used for anything from keeping the overheads covered to getting a locum or contractor in to cover the directors work. When the director is fit to return to work there will still be a business to go back to.

Anyone running a SME should really consider this as a priority business expense. Yes, it is tax deductible.

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