What is Shareholder Protection and Key Person Insurance?
Since the Covid-19 pandemic hit in 2020, it has brought into sharp focus the challenges that businesses face when colleagues are taken ill.
Key Person Insurance protects companies against the loss of a key employee who is fundamental to its operations. It typically provides protection for the costs of replacing a key person, loss of profits and/or repayment of business loans in the event of death (or critical illness). Banks can sometimes require this type of cover when finance is provided.
Shareholder Protection is another form of cover providing funds in the event of the death (or critical illness) of a shareholder facilitating the surviving shareholder(s) to purchase the deceased’s share of the business from his/her estate. This safeguards the viability of the business whilst the shareholders and beneficiaries determine the way forward.
Both Shareholder Protection and Key Person Insurance are provided by effecting suitable life assurance (and/or critical illness) policies, providing a lump sum payment to either the surviving shareholder(s) or the company respectively. It does not provide personal ‘family’ protection for the individual mentioned in the policy. Personal Protection can however be affected by the company using a relevant life policy – a single life ‘Death in Service’ arrangement.
Why is Shareholder Protection and Key Person Insurance important?
Up until recently, Shareholder Protection and Key Person Insurance has been seen by firms as an added extra in their portfolio of insurance products. Times are changing.
More than ever, companies are now waking up to the fact that the loss of fundamental personnel can be catastrophic to their ongoing capabilities.
Becoming more resilient to future economic shocks as well as the simple, sad fact that people do pass away whilst at the peak of their career, is a growing priority.
Business continuity and peace of mind are important, especially for Small and Medium Sized Enterprises that are the lifeblood of the economy.
It is estimated more than half would fail if the company owner or a major stakeholder was unable to work.
How can Russell Scanlan help business clients with Shareholder Protection and Key Person Insurance?
There are many different considerations to account for when deciding on the right business protections. Some products might bring tax implications, others simply may not deliver the optimum level of cover.