L’Key Person Insurance is essential to protect a business from the financial consequences related to the disappearance or incapacity of a crucial individual. Discover the key aspects of this insurance and how it can benefit your company.
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What is key person insurance?
Key person insurance is a financial protection aimed at compensating for the consequences of the disappearance or disability of a crucial individual for the company. In the event of this person’s loss, the insurance provides for the payment of a capital to help the business overcome this difficult situation.
Who is the key person within a company?
The key person can be the business leader, often the founder and manager, whose company heavily depends on their skills and involvement. It can also be a critical employee who makes a significant contribution to revenue, such as a sales manager or an innovative researcher.
Why subscribe to key person insurance?
Subscribing to a key person insurance allows the company to protect itself against the financial consequences of losing an indispensable person for its proper functioning. This financial protection helps the business maintain its activities and reorganize in case of the key person’s disappearance.
What does key person insurance cover?
Key person insurance protects the company by covering financial losses related to the disappearance of the key person, such as the loss of profit margin or repayment of loans. It may also include an optional guarantee for partner protection, allowing to receive a capital to buy back the shares of the deceased partner from the heirs.
Amounts covered by key person insurance.
The flat-rate system provides a fixed capital amount determined at the time of signing the insurance contract. The indemnity system, on the other hand, considers the actual financial loss suffered by the company following the disappearance of the key person, thus adjusting the indemnity paid.
Cost of key person insurance.
The cost of a key person insurance depends on the insured capital amount, age, health condition, smoker status, and the profession or risk activities of the key person. The higher the risk factors, the higher the insurance premium.
Medical formalities to subscribe to key person insurance.
Subscribing to a key person insurance generally requires completing a health questionnaire concerning the key person. For higher coverage amounts, additional medical examinations may be required by the insurer to assess health risks.
Tax advantages of key person insurance.
Premiums paid by the company for the key person insurance are generally deductible from taxable income, and the indemnities received in case of a claim can be spread over 5 years.
Waiting periods and exclusions:
The conditions for compensation under a key person insurance depend on the waiting period and specific exclusions in each contract. The waiting period is the time during which the insurance does not cover claims; typically, there is no waiting period for key person insurance. Exclusions are situations where the insurance does not cover the insured, such as engaging in risky sports or pre-existing, undeclared illnesses.
How to find a key person insurance?
Using a broker for key person insurance such as Gus Assurance offers advantages such as market expertise, guidance towards the best options, and comparison of quotes from different insurers. The broker also helps in understanding coverages, exclusions, and claim conditions. In short, consulting a broker simplifies the search and subscription process, saving time and effort.
The importance of general expense insurance to protect your business.
The general expense insurance, complementary to key person insurance, aims to cover the company’s fixed expenses in case of temporary incapacity of the manager or a key person, thus providing comprehensive financial protection for your business.
Thank you for reading. We hope this sheet will help you achieve excellent results in your upcoming exams.
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