Key Person Assurance And Shareholder Protection

How would your business cope if it suddenly lost say its Managing Director, its Operations Director, a Sales Director, or indeed any other ‘Key’ individual who is highly influential in the revenue the business generates or the profits these result in? You might be able to continue for a while but the viability of your business will inevitably be damaged, perhaps beyond repair.

Key Person Protection seeks to plug the financial gap which might be created by the death or serious illness of such individuals; it aims to ensure the business can continue despite their loss. In essence it’s as important as insuring your stock, equipment, building or indeed any other business asset. Yet it is often overlooked and our experience shows that in many cases businesses only really consider such cover when they are forced to do so by the requirements of a lender.

There is a further complication where the person concerned is also a major shareholder or owner of the business. In the event of their death it may well be that the legal entitlement to their share of the business passes into their estate. Their spouse or partner may then become, by default, a major share holder in the business. While they may have inherited the control it is unlikely that they will have inherited the skills or knowledge required to run the business. For these reasons businesses often take legal advice over the structuring of agreements between their owners that deal with what might happen. Insurance contracts can be very helpful in making the money available to ensure those agreements can be properly enacted.