The key directors and employees of a successful company bring experience, knowledge, management expertise and contacts to the business. Without these the business would not succeed.
If one of these key people were to die suddenly, the company could be threatened by the sudden and permanent loss of that person’s skills and experience.
In such circumstances, the profitability of the company could be interrupted and threatened by:
• The calling in of bank loans, for which the deceased had given a personal guarantee.
• The reduction or withdrawal of credit facilities by banks or suppliers, worried about the future profitability of the business following the death of the individual.
• The repayment to the deceased’s estate of any loans made by him or her to the company
• The loss of the individual’s management expertise.
• The loss of the individual’s business contacts, i.e. loss of goodwill.
• The need to commit resources to the recruitment of a suitable replacement. In some cases, where the individual has unique experience and expertise, a suitable replacement may simply not be found.
Protecting the Business
Keyperson Life Assurance is life assurance cover taken out by an employer on a key director or employee, to protect the employer from the financial consequences of that individuals’ death.
Keyperson Life Assurance can therefore insure the company against the cost of business interruption resulting from the death of a key director or employee, much in the same way as a company
will normally insure against loss of trading profits resulting from fire and other perils.
Likewise, Keyperson Specified Illness Cover insures the company against the financial consequences of a
key employee or director being unable to work due to specified illness as defined in the policy.
By having Keyperson Life Assurance, the company will receive an immediate lump sum payment on the
death of the individual insured under the policy.
The company can use these funds in any way it
wants. It could:
• Pay off outstanding bank loans
• Repay any loans made by the individual to the company
• Recruit a suitable successor
• Invest the funds
• Invest in the business
Who should be insured?
The company might insure any director or employee on whom the business depends for its continued
success, and whose death could result in the business suffering an interruption of business and
The key directors and employees of a successful company bring experience, knowledge, management
expertise and contacts to the business. Without these the business would not succeed.