Key Person Insurance
Some small to medium-sized businesses depend heavily on a key person or group of people; without them, the business wouldn’t be able to operate. In these businesses, that creates an unacceptable level of risk, since there are others that depend on the business’s success. You can reduce that risk by taking out key person insurance. Talk to a NZbrokers member to find out more.
Key person insurance broker
Small to medium-sized businesses often owe their success to one or two key people who are the driving force and strategic thinkers. Sometimes the business owes all or a large proportion of its income directly to that person or persons. If this person passed away or became incapacitated, the business would likely be unable to operate, at least in the short term.
When that’s the case, it makes sense to protect the business by taking out key person insurance. This is effectively a life insurance policy where the business, rather than a relative, is the key beneficiary.
Key person insurance can pay out as a monthly benefit to keep the business afloat until managers can find a way to adapt to the loss of that key person. Or, the business can receive a lump sum that it can use to pay off debts, distribute money to investors and close the business down in a fair and orderly manner.
If a person operates as a sole trader, then personal life insurance or income protection insurance may be more appropriate to provide for their dependants if they were to pass away or become unable to work.
Understanding the different options available and getting the right insurance, whether it’s key person insurance or another type of cover, can be confusing and time consuming.
To get the right coverage, you need to talk to the experts in key person insurance.
NZbrokers is a network of independent brokers with extensive experience in key person insurance, and we have a broker close to you.
NZbrokers can help you:
- find the best insurance cover for your business’s needs
- review cover from the broadest range of insurers
- understand premiums and risk management
- manage insurance claims for a better outcome.
*Talk to one of our independent brokers today to find out more. Click here to find the broker closest to you
Getting the right key person insurance
Some businesses are built on the force of a single personality, while others just depend on one person to keep everything together. To decide whether your business needs key person insurance, think about what would happen if that person were suddenly unable to work and couldn’t pass on their knowledge, experience, or processes.
If that would mean a death knell for your business, then you may need key person insurance.
Planning is key to business success. Surveys have found a direct correlation between a strong planning process and business growth. Worryingly, very few New Zealand small- to medium-sized businesses have an exit or succession plan in place1.
Key person insurance can form an important part of your contingency plan and it can be a valuable way to reduce risk in your business. Understanding whether key person insurance is right for your business and, if so, what type of cover is best, can be difficult.
It’s important to work with an experienced key person insurance broker to find the right cover. They’ve done the research and investigation so you don’t have to, and they can provide you with a range of options that suit your needs and budget.
Here are four things to look for in a key person insurance policy:
| 1 | Benefit | The amount your key person is insured for depends on their value to the business and, in general, you should insure them for as much as you can afford. Start by honestly assessing their value to the business so you have adequate funds to maintain the business. |
| 2 | Terms | Some insurance providers will push you towards policies with higher premiums and commissions, which usually include cover you may not need. For a key person, term insurance is usually the most beneficial and cost effective. |
| 3 | Choice | The right policy will let you choose what you use the benefit for, whether that’s covering existing expenses, hiring new staff, or winding up the business. |
| 4 | Ownership | The person or entity that owns the policy should be the same person or entity that operates the business but there is flexibility in how key person insurance can be set up, so make sure you talk to your broker about the options. |
Choosing the right key person insurance for your business’s needs depends on a broad variety of factors. Working with an independent, transparent insurance broker like a member of NZbrokers means you don’t have to spend time and resources investigating all the options and hoping you don’t miss something. Your broker will be able to find the right policy for you and you may even end up paying less than you think for your preferred policy.
Contact one of our independent brokers today to find out more.
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