What happens when your business Key
Person dies, becomes disabled or so sick that they are no longer any
use to the company?
Most of the time this means the end of
the company, as without his vision, expertise and knowledge there is
just no business left. The result are huge losses for everyone
involved.
Example: I went into business with an
ex-professor who found a way to mark music with sounds below what
humans can hear – he was the man! This had a great of applications
in monitoring both advert content and artist royalties. Unfortunately
for me the professor died and I did not have the know-how to update
and fix minor bugs in his system, so I had to write off all the time
and money I had invested in the project.
There is a solution for this
problem, if only I had made use of it...
It is called Key Man or Key Person
insurance and it is a life insurance policy that is taken out on the
Key Man to be paid to whoever will have losses as a result of his
untimely death, disability or dreaded diseases that may befall this
Key Man.
So what is needed to qualify to be
able to get this Key Man cover?
- You have to show that there will be a loss due to this person's absence
- You have to show how much this loss will be
- This potential loss will have to be verified
- This Key Person will have to be under written – life insurance on Key Man
- A business plan will be needed for a start-up company
Then there is the question of cost?
With life
insurance there are costs involved in the insurance taken out on the
Key Person/Key Man.
Life insurance is
hedging your bets; in this case your risk. With all forms of hedging
the basis is that you are willing to give up some of your profit in
the knowledge that you will never be left with nothing. In this
scenario you are willing to pay the insurance premiums on the Key Man
or Key Person in the knowledge that if he or she dies, becomes
disabled or contracts or develops a disabitating sickness. you will
not be left with nothing.
In the payment of the premiums you
have two options.
You can pay the
premiums with after taxed money and then if there is a claim the
money you receive will be tax free.
OR
You can pay the
premiums and deduct it from tax, but then if there is a claim you
will have to pay tax on it as if it is an income to you.
This normally has
a lot to do with the tax position your company finds itself in, what
tax bracket your company is in, etc.
Conclusion
As you can see the
problem of the untimely demise or disability or serious sickness of
your Key Man can have devistating consequences for your business. If
you have not made the nesasary arrangements and do not have the right
strategy in place it could cost you your business. But if you put Key
Man insurance in place you will always get paid for your work.
If you have any
further quistions or if you would like to find out how much it will
cost to get your Key Man insured, do not hesitate to call or email
me, or follow the link to my website sandtonkeymaninsurance.webs.com
