Shareholder Protection Insurance Cover

Shareholder Protection Insurance Cover

What happens if an owner or part-owner of a company dies unexpectedly?

Regardless of the industry you operate in, it’s critical to ensure that you protect your business with a safety net. After all, it represents not only the livelihood of you and your family, but also that of your employees and fellow shareholders.

The event of a business owner dying unexpectedly can have a serious detrimental effects on their enterprise, not to mention the lives of their family. When it comes to distributing shares, family members and other beneficiaries may prefer to cash them in. Meanwhile other shareholders may wish to purchase the shares but may not have adequate funds at their disposal. This is where shareholder protection insurance comes in extremely useful.

The benefits of shareholder protection insurance:

  • A safe and stable business plan
  • Support for family members
  • It covers serious illnesses

Key Person Insurance

The death of a key employee in a business can have a devastating financial impact. You can provide your business with a safety net against the death, terminal or critical illness of a key employee with key person protection.

  • What is Key Person Protection?

Put simply, Key Person Protection (also known as key man insurance) is a business insuring itself against the financial loss it would suffer if a key person in their business died or were diagnosed with a specified critical illness.

  • How does Key Person Protection Work?

Key Person Protection is a life assurance or life assurance and critical illness cover policy taken out to cover the life of a key person within your business. The policy is owned and paid for by the employer, so any pay-out is payable to the employer.

  • Why do I need Key Person Protection?

The business could suffer badly, with sales and profits falling and increased workloads for the remaining staff. The reason this coverage is so important in a small company is because the death of a key person could also lead to the immediate death of the company itself.

What is Key Person Insurance

What is Key Person Insurance?

Key person insurance (also known as Key man insurance) put simply, is life insurance on a key person within a business. In a small business this is typically the business owner, or perhaps a key employee or two. These are the people who are critical to a business — the ones whose absence could potentially sink the company. For example if something happened to the top sales person, the loss of revenue could cause major financial implications for the business.

So how does Key Person Insurance work?

Here’s how key person insurance works: A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies, the company receives the insurance payoff. The reason this coverage is important is because the death of a key person in a small company can cause the immediate death of that company. The purpose of key person insurance is to help the company survive the blow of losing the person who makes the business work.

The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner. In a tragic situation, key person insurance gives the company some options other than immediate bankruptcy.

If the company is a sole proprietorship and employs just you and no other employees or has no other people who depend on it, then key person insurance isn’t as necessary. You’ll notice we didn’t mention your family – don’t confuse key person insurance with personal life insurance. If you have a spouse and/or children who depend on your income, then you should have personal life insurance for that purpose.

Who typically needs this insurance?

Look at your business and think about who is irreplaceable in the short term. Within small businesses certain key staff hold so much experience and knowledge of processes and systems, that if anything was to happen to them, it’s not just a matter of replacing them – a new person could take years to fill their boots.

In many small businesses, it’s the owner who holds the company together – they may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much stops.

How much key person insurance do you need?

That depends on your business, we recommend you seek independent financial advice from an adviser who is experienced in business protection.

This article should be taken as information only and should not be taken as advice.