Key Person Insurance

Insights with Infinance by Brian Coogan 

What happens to your business if the person who makes it work suddenly can't? 

Most businesses insure their buildings, vehicles, machinery, stock and other assets. But one of the most valuable assets can walk through the door every morning — the people behind the business. 

For many businesses, one person may be critical to sales, customer relationships, technical expertise, operations or decision-making. If that person dies or becomes seriously ill or disabled, the financial consequences can extend well beyond the personal impact. 

That's where key person insurance comes in. 

Key person insurance is designed to protect the business financially when an essential person can no longer contribute because of an insured event. Depending on the policy, the proceeds can help replace lost revenue, recruit and train a replacement, maintain cash flow, reduce debt or provide the business with time to adapt. 

The key person isn't necessarily the owner. It could be a senior manager, salesperson, specialist tradesperson or employee with knowledge and relationships that would be difficult and expensive to replace. 

A simple test is to ask: “If this person wasn't here tomorrow, what would it cost the business?” 

The answer may be much bigger than their salary. 

Key person insurance is different from personal life or income protection insurance. Personal insurance is generally designed to protect an individual and their family. Key person cover is about protecting the business and the people who rely on it. 

It can be particularly important for small and medium-sized businesses, where expertise, revenue and responsibility can be concentrated in just a few people. 

A good business protection review should therefore look beyond the assets on the balance sheet and consider the people who create the value. 

At Infinance, we believe protecting your financial future means looking at the whole picture — finance, mortgages, insurance and investment. 

You insure what your business owns. Make sure you also protect who your business depends on.  

Talk to a licensed financial adviser about your circumstances. Policy terms, conditions, exclusions and underwriting apply. 

For more on the above go to www.infinance.co.nz/insights 

Written by Brian Coogan, Licensed Financial Adviser and Director at Infinance – Taupo 

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