Key Person Insurance
Everything you need to know about Key Person Insurance
Key Person Insurance
Everything you need to know about Key Person Insurance
Understanding Key Person Insurance: What You Need to Know
What Is Key Person Insurance?
Keyman insurance is more commonly referred to as key person insurance and is an important policy for Australian companies. It gives a financial security by providing payments to the business in case a key member of staff or owner dies or is incapacitated thereby allowing the business to carry on even in difficult circumstances.
How Does Key Person Insurance Work?
Key person insurance is an insurance policy that businesses purchase to cover their key employees or owners. The business is responsible for paying the premiums, and if the insured key person passes away or becomes incapacitated due to illness or injury, the business receives a lump sum or monthly benefits.
These benefits can be used to offset various costs, such as lost revenue, hiring and training a replacement, or paying off business debts. This type of insurance is crucial for maintaining business operations and stability during the challenging period following the loss of a vital team member.
How do businesses determine the coverage amount?
Businesses determine the coverage amount for keyman insurance by assessing the financial impact of losing a key person’s salary and benefits, their contribution to revenue and profitability, the costs of recruiting and training a replacement, and any business debts they have guaranteed. By evaluating these factors and consulting with an insurance advisor, businesses can ensure they have adequate coverage to maintain financial stability if a key employee or owner is lost.
Why you should engage Morgan Insurance Advisors as your preferred Key Person Insurance Advisor
Engaging Morgan Insurance Advisors as your preferred Insurance Advisor ensures you receive expert guidance tailored to your business needs. With our extensive industry experience and deep understanding of business risks, we can help you determine the right coverage amount to protect your company from the financial impact of losing a key employee or owner. Our personalised approach and commitment to client satisfaction make us a reliable partner in safeguarding your business’s future.
Morgan Insurance Advisors not only organise eerything for you but also provide a holistic approach, ensuring all aspects of your business’s insurance needs are comprehensively covered from Key Person Insurance, through to Business Insurance too.
Key Person FAQ's
In Australia, the tax deductibility of key person insurance premiums depends on the policy’s purpose: premiums are generally tax deductible if the insurance is for revenue protection (covering loss of income or profits due to the death or disability of a key person), but not deductible if the policy is for capital protection (covering capital losses like debt repayment or buying out a deceased partner’s share). For specific advice, please consult your accountant.
Here’s a comparison table highlighting the differences between key person insurance and traditional life insurance:
| Aspect | Key Person Insurance | Traditional Life Insurance |
|---|---|---|
| Purpose | Protects a business from financial loss due to the death of a key individual | Provides financial support to the insured person’s family or other beneficiaries |
| Policy Owner | The business | The individual or their family |
| Premium Payer | The business | The individual or their family |
| Beneficiary | The business | The insured person’s family or other designated beneficiaries |
| Use of Death Benefit | Covering expenses like hiring a replacement, paying off debts, or maintaining operations | Providing financial support to the family, covering personal debts, or other needs |
You don’t have to hire a solicitor to set up key person insurance. Usually, you can get this insurance through an insurance broker or directly from an insurance company. However, it might be helpful to talk to a solicitor or financial advisor to understand the legal and financial details, like tax issues or how it affects business agreements.
Take Jones Manufacturing Co., for instance. John Jones, the founder and CEO, was the driving force behind the company’s success. When John suddenly passed away from a stroke, the business faced major financial and operational hurdles. Thankfully, they had key person insurance. The payout helped cover lost profits and paid for hiring and training a new technical expert. It also provided funds for additional training for current employees, ensuring projects stayed on track and the company’s reputation remained intact.
