When a key person in a business dies it can have a devastating financial effect. You can help safeguard your business against the death, terminal or critical illness of a key person with key person protection.

Put simply, Key Person Protection (also known as key man insurance or key person insurance) is a business insuring itself against the financial loss it would suffer if a key person in their business died or were diagnosed with a specified critical illness if chosen, during the length of the policy. It also pays out if the key person is terminally ill and meets our definition, except in the last 12 months of the policy.

Key Person Protection is a life assurance or life assurance and critical illness cover policy taken out to cover the life of a key person within your business. The policy is owned and paid for by the employer, so any pay out is payable to the employer.

The loss of a key person in your business could have a severe impact. The business could suffer badly, with sales and profits falling and increased workloads for the remaining staff.

Key Person Protection is designed to pay out a lump sum on the death of the insured key person, during the length of the policy. The lump sum could significantly help the business to recover as the proceeds can be used to help replace lost profit or with finding and hiring a replacement.

If a shareholder in your private limited company, member of your Limited Liability Partnership (LLP) or partner in your partnership were to die could you afford to purchase their share of the business? If not there could be significant implications for the future of your business. Share protection can help you protect the ownership of your business in this situation.

In the event of a business owner dying or being diagnosed with a terminal or specified critical illness*, share protection can provide a lump sum to the remaining business owners. This means that in the event of a valid claim being made during the length of the policy, the lump sum could be used to help purchase the deceased partners/shareholding directors/members interest in the business.

*If Critical Illness Cover is chosen as an additional option for an extra cost.

If a business owner dies with no share protection in place his or her share in the business may be passed to their family. This means that the surviving business owners could lose control of a proportion or, in some circumstances, all of the business. The family may choose to become involved in the ongoing running of the business or could even sell their share to a competitor. A share protection policy can help avoid these issues.

Business loan protection is often called a business loan insurance as it helps the borrower repay his loan in case an unfortunate event happens.

Business Loan Protection is a form of Life Insurance which pays off outstanding corporate debt should a person key to the business pass away.

These debts might include company overdrafts, commercial loans, venture capital funding and commercial mortgages.

Include Critical Illness Cover to protect against the risk of suffering a serious illness such as cancer, heart attack or stroke.

It is designed to protect against the risk of the death (and potentially a serious illness if you add Critical Illness Insurance) of a key individual who has a level of responsibly for repaying the outstanding debt.

• Life Insurance which will pay out a lump sum if a key person dies or becomes terminally ill.
• Critical Illness Insurance which can be added to the life cover so a claim would be paid if the key person were to suffer one of a number of serious illnesses such as cancer, heart attack or stroke as defined in the policy terms.

Essentially anyone with a part to play in repaying an outstanding company loan can be covered for the remaining amount of debt should they die or become seriously ill.

Most insurers offer terminal illness cover as part of their Life Insurance cover. That means you’ll receive a payout early if you’re diagnosed as terminally ill. (The definition of terminal illness is usually an individual having less than 12 months to live.)

Although Critical Illness Insurance covers serious illnesses such as cancer, heart attacks and strokes it won’t cover less serious conditions that could nonetheless prevent you from working, such as mental health conditions and musculoskeletal issues.

If you’re a small business or sole trader being unable to work and earn an income due to any illness or injury can be just as devastating to the financial position of your business as a more serious illness.

To protect themselves from a greater range of illnesses that could render them unable to work many directors and small companies turn to income protection.

Income Protection provides a continuation of income if you are unable to work due to any accident or sickness. The benefit of Income Protection over Critical Illness is that it can also protect your personal finances as well as covering a business loan if you were to fall ill.

Although protecting a business loan is not a legal requirement many business lenders and venture capital firms are starting to insist on having some means to repay a loan should a key person die or become seriously ill.

An uninsured business loan runs the risk of your company being declared insolvent after your death if it no longer has viable means to repay the loan.