Blog written: 15/10/2024
In today’s blog we take a deeper look at Key Person Cover. Key Person Cover provides financial stability for the business if a key person within the company dies or becomes critically ill.
Key Person Cover is particularly important to small businesses where their profits rely on a small number of staff i.e. the top salesperson or product technical expert.
If one of these key people die or suffer with a critical illness, the business may need an injection of money to ensure they can maintain expenses or profitability until a replacement is recruited and trained. Business owners can also insure themselves as key people.
Key Person Cover is basically life insurance with or without critical illness cover.
The business pays the premiums and the business will own the benefits in the event of a claim.
You can select the amount of cover based on business need or budget. Below are 2 formulas that are commonly used to identify the cover amount needed:
- Cost of replacing an individual based on their earnings.
- Replacing the profits the key person is responsible for.
To work out the term of the plan, the following should be considered:
- How long you expect the person to remain in the business.
- What their normal retirement date is.
- How you see the business expanding.
- Whether the profits or sales are needed to repay a business debt.
This type of cover has taxation considerations and your accountant should be part of the advice process. We can work closely with all parties to ensure you understand the tax position of Key Person Cover.
In summary, taking advice is the ‘key’ to Key Person Cover.
For more information on this valuable protection plan and for advice on all areas of business protection, please contact us on 01455 63 61 63 or click here to view our availability & book yourself in. https://onerooffinancial.co.uk/contact/
The information contained within this blog was correct at the time of publication (15/10/2024), and is subject to change.
