Key person insurance is a term used for arrangements intended to protect a business against the financial impact of losing an important person through an insured event. “Key employee insurance” describes the same broad business concern; the actual cover depends on the policy.
Define the business problem
Identify the person’s role, the responsibilities that need replacement and the financial commitments the business would face. Loss of revenue, recruitment costs, debt and ownership succession are different problems and may call for different arrangements.
Check the insured event and ownership
Ask which events the policy covers, who owns it, who is insured and who receives a benefit. Do not assume that death, disability, illness and ordinary resignation are all covered. Ask how the arrangement differs from personal life cover or a shareholder buy-sell agreement.
Coordinate professional advice
The policy structure can interact with business ownership, loan agreements and tax. Ask an appropriately qualified insurance adviser, accountant and lawyer to consider the relevant parts. This article does not determine tax deductibility or recommend a policy structure.
Keep the arrangement current
Review it when a key person leaves, ownership changes, debts change or responsibilities move. Keep policy and business documents together so the intended purpose can be understood later.
For an overview of business protection categories, consult business.gov.au’s insurance information. If requesting an insurance callback, describe the business purpose in your Cockatoo enquiry. An enquiry does not establish cover.