Key Person Income Protection
Key Person Income Protection
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The time and effort you put into refining and creating the products you have brought to market are certainly a factor. As is the attention you put into ensuring that each and every customer or client gets the very best standard of service. Not to mention the brand you have built that makes a promise to your clientele and stands for a set of qualities and values for which your business stands. But let’s not forget that it is the people that make your business great! And while this certainly applies to the frontline employees who deliver outstanding service to your customers, it applies doubly to the key personnel who are behind the strategic decisions that keep your business ahead of the pack.
Whatever clever marketing bells and whistles you may employ and whatever creative means you use to assert your brand identity, make no mistake, it is the key personnel that make your business great! And when they are unable to work their magic for your company, this can result in a loss of momentum for your business. Key Person Income Protection insulates your business from risk if this unfortunate eventuality should come to pass.
Here we will look at just what it is, why your business needs it and how such policies work.
For success in business, overhead costs need to remain manageable while profits need to be consistently high.
It pays out a monthly income at the end of a deferred period if the person covered by the policy is unable to work in the event of an illness or injury. It also covers key personnel should they be unable to carry out the everyday tasks that make them an indespensible asset to the company or if the covered person meets the provder’s definition of incapacitated.
In most cases, if a key member of your team is diagnosed with a terminal illness, payments can start without the need to wait for the deferred period to end.
A Key Person Income Protection Policy pays out a set amount (typically around 75%) of gross profits attributable to the person covered up to a set value. This may vary by policy but usually tops out at around £250,000.
For success in business, overhead costs need to remain manageable while profits need to be consistently high. Yet, turning a consistent profit is a never-ending battle for many business. Profitability comes with the right strategic leadership facilitated by hard-working and enthusiastic personnel. But when key personnel are unable to provide that leadership, it can result in stagnation or even a loss of profit.
This, in turn, can make businesses less able to meet their overhead costs and corporate debt obligations. Over a long enough timeframe, this may place growing restrictions on cash flow and with a loss of liquidity, paying off debts and maintaining good relationships with vendors can become untenable.
Eventually, without the profits generated by the presence and input of key personnel, your business may become insolvent. No matter how strong a position your business may be in today, nobody knows for sure that it will be able to maintain its position tomorrow without the people who make it everything that it is.
Resultantly, this should be an essential consideration for businesses of all shapes and sizes.
Hopefully the above has made you consider just how big a difference Key Person Income Protection can make between staying afloat and going under when a key member of your team is incapacitated. Now let’s take a look at how the cover works.
There are two kinds of cover- Level cover and Increasing cover. When you opt for Level cover, the amount paid remains static throughout the policy’s duration. With Increasing cover, however, cover can protect against the effects of inflation. Increasing cover can be at a fixed rate of 2-5% or an index-linked rate which can vary between 2% and 10%.
Policies are readily flexible, allowing policyholders to choose the length of their deferred period as well as how long they need the cover to pay out for. This enables businesses to keep premiums manageable while also insulating themselves from risk.
Payments continue until the cover period ends or:
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There’s usually great flexibility in terms of how long a Key Person Income Protection policy can cover. Terms typically range between 5 and 20 years.
Cover can start within a range that covers the majority of working ages. Minimum age for cover is 18 while most policies will have a maximum starting age of 59. This will usually cover most key personnel throughout their working lives.
Most cover periods end when the person covered reaches the age of 70.
While all policies vary, typically a provider will refuse to pay out a claim under the following circumstances.
Always read your prospective providers terms and conditions before committing to a policy.
It’s always essential to make an informed decision when choosing any form of protection for your business. If you need further advice we’d be delighted to discuss how our Key Person Income Protection can aid your operation and advise on the right cover for you. Call us today on 02071128844.
UK’s Number One Business Protection Specialist.