Who is your business’ most important person? What would happen to your business if that person was unable to work for a period of time?
Small & medium sized businesses, like the majority of Kiwi building firms, generally have one or two people that they depend on heavily, and if one of those people is out of action the ongoing performance of the business could be put at risk.
This person, it could be you, is critical to keeping the business ticking over and/or has a specialist knowledge or skill that is vital to the business’ continued trading success. They could be responsible for:
- running the business
- keeping the sales pipeline full
- organising workflow/project management
- invoicing, cashflow management and credit control
- quality control
- health & safety
Key Person Insurance
Key person insurance works like a life insurance policy, except that the beneficiary of the policy is the business. It can provide monthly and/or lump sum payments to reduce the impact on the business if that person is unable to work due to death, illness or injury. You can use this money to cover expenses, such as hiring temporary staff, until they return to work or you find a replacement person. The money can also help with an orderly succession, sale or closure of the business if necessary, ensuring current projects are completed and suppliers and workers are not left out of pocket.
How does this differ from ACC and private income protection and life type insurance?
ACC pays compensation for lost earnings directly to an individual. It is designed to support them and their family while they are rehabilitated, not compensate for lost business revenue or pay business expenses.
With private income protection, life, trauma and disability insurance the beneficiary of the policy is typically the individual or their partner and family, who depend on that income.
Although variations exist, key person cover is typically limited to terms of 6, 12 or 24 months, whereas you can get ACC and private income protection cover right up until age 65.
Points to note
With key person cover there will be a waiting period before the cover starts, which may also be subject to a medical assessment. Age and the amount and length of cover required will affect the premium.