Key Person Life Insurance & Shareholder’s Protection
In this week’s edition, I delve into the world of key person life insurance & shareholder’s protection, namely:
- What is it?
- Who is it for?
- CTO Case Study
- How the benefits could be used?
- Key Features of the policy
- Quote Requirement
What is Key Person Life Insurance?
Key person life insurance is a life insurance policy taken out on a key person or key people in a business. The company, rather than the individual, owns the policy, pays the premiums, and is the beneficiary of any payout, rather than the dependents of the insured.
It’s easy to measure the value of tangible assets like the value of a property, equipment & contents, but what happens if one of these crucial individuals is suddenly unable to work due to illness, injury, or even death? What negative effects will your business have? What happens to that person’s shares?
Intellectual property, leadership acumen & years worth of experience are less tangible yet can have a devastating affect if suddenly lost.
Who is Key Person Life Insurance For?
Key person life insurance could be taken out on one or multiple people, including:
- Business Owners or Founder
- Directors, Partner, Senior Management
- Top salespeople who account for a large portion of a company’s revenue
- Any other vital member of your team
Where key person life is especially important are for high-revenue businesses where there may be a few shareholders, such as law firms, tech companies, financial services firms, accounting firms, business consulting firms & more.
CTO Case Study
Consider the case of a tech startup that relies heavily on its CTO to conceptualize, lead & develop the product that IS your whole business.
If the CTO were to suddenly depart due to a health issue, the company could face delayed product launches, lost market share, and a potential drop in investor confidence.
With Key Person Insurance, the startup would receive a payout to help cover the costs of finding a suitable replacement, keeping the development pipeline moving, and maintaining investor relations during the transition.
How the Benefits Could be Used
If a key person were to pass away, the business would receive the lump sum payout, which could be used as the business sees fit, including:
- Having the sum insured go to the deceased’s family/estate, in exchange for their shares (shareholder protection). This would be an agreement between the shareholders with the long-term interest of the both the company and their family in mind.
- To ensure business continuity, by replacing lost profits. If the key person was critical to revenue generation, the insurance proceeds can offset lost profits until the company regains financial stability.
- The cost to replace a key person, including recruitment costs, salary and onboarding time
- Loan or Debt coverage- in the event of a business loan
- Investor reassurance – Investors often seek reassurance that the company will remain viable if a key person passes away. The existence of key person insurance can provide confidence to investors that the company has a contingency plan in place.
Key Features of the Policy
At EB Asia, we use international life insurers that offer:
- Policies in USD, Euro or GBP
- Reinsured by Tier 1 global reinsurers
- Available to expats or local citizens
- Worldwide coverage area + plan is not tied to one particular country
- Fixed level premiums that do not increase with age or inflation
- High sum-insured limits available
- Medical Underwriting
Requirements for a Quote
If you’d like a quote for your organization, be prepared to declare nationalities, residence countries, gender, age, smoking status, desired sum insured & more.
As the policy is taken out by a business to protect their own interests, financial underwriting is also required. That would be things like providing 3 years’ audited accounts, business certificates & more.
If your company is open to receive more info & quotes, please reach out for transparent advice, quotes & then you make an informed decision from there.
