It is designed to protect against the financial consequences associated with unexpected events affecting key personnel. These may include sudden death; critical illness and permanent disability. Key person cover provides funds to pay expenses and debts or replace lost revenue to keep a business financially stable.
Keyman is essentially a life insurance policy for a business ie. a lump sum is paid to the business should a key person die.
Ascertain the contribution of the key person to the business and what financial impact that person would have on the business if they were not there to carry out their usual activities.
It is usually an expense to the business as the business is the beneficiary should a claim be made on the policy.
A well-known Australian business implement a $25M key person policy on the life of their founder, who was also the CEO and main driver of the business.
On review, it was determined the key person was still responsible for more than 50% of the turnover of the business and the cover was critical to the short and medium-term growth plans.
The cover provided a contingency to the bank and the board of the business. In the event of death of the key person, the business had the liquidity to extinguish the lines of credit and to hire suitable replacements to carry out the future business plans.
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