Key Person Insurance

As a business owner you no doubt value the contributions each of your employees make to your business. However, there are also key individuals who are critical to the continued success of your venture. Losing such a key individual would impact you on a personal as well as business level.

Death and disability are a reality of life. The best that you can do is ensure that you have planned and provided for the necessary funds to overcome the negative impact caused by such a loss.

The possible impact on your business could be:

• A slowdown in turnover.
• Decline in profitability and/or sales.
• Stricter terms from suppliers.
• Difficulty in raising finance.
• Loss of expertise.
• Delay in finding and the high cost of hiring a successor.

Identifying a key person in your business

A key person is anyone who significantly improves the profitability and effective management of your business. For example, a key person is someone who:

• Has specialist, expert skills vital to success in your industry.
• Attracts and retains competent staff members.
• Increases the creditworthiness of the business.
• Builds goodwill for the business.

The solution

Key Person Insurance from Old Mutual Greenlight insures the life of a key employee for the purpose of compensating the business for the loss of income that it would suffer in the event of that employee's death or disability.

The Greenlight benefit payment can then be used to absorb disruptions to the business and provide funds to recruit and train a suitable replacement.

Establishing the value of a key person

No formula or set of rules can be applied when determining the value of a human life. For insurance purposes, however, the amount of key person cover is usually determined using one of the following methods:

1. Seven times the annual salary of the key person; or
2. The estimated number of years that it would take for a replacement to reach the key person's present level of profitability, multiplied by the drop in profits as a result of the death or disability of the key person; or
3. Itemising the costs involved in replacing the key person. Such costs could involve:

• The actual cost of replacing the key person.
• The key person's worth in terms of net profits.
• The cost to the business if the key person were to die or become disabled today.
• The degree to which the business wishes to protect itself against the loss that would be sustained upon the loss of the key person.

Features and Benefits

On the death or disablement of the key person, the Greenlight benefit payment will ensure:

• An interim cash amount for recruiting, training and/or development of new employees.
• The continued existence and development of the business.
• That existing/potential contracts are not affected.

That the creditworthiness of the business is not affected.

How to apply

If you are interested in Key Person Insurance risk cover, email us and we’ll have an adviser call you or contact Personal Financial Adviser.