Keyperson insurance, case studies
Keyperson insurance prevents a catastrophe
Andy is the IT Manager at a medium sized builders merchants. Andy ensures the smooth running of the firms computer system, as well as helping with other management responsibilities and deputising for the MD when he is away. Andy suffers a stroke and is unable to work.
As Andy was one of the people covered by the firm's keyperson insurance policy, the payout enabled them to have temporary staff enrolled to ensure the continued running of the IT system, plus cover recruitment costs of Andy's replacement.
Without this cover, the firm would have had to find the money to hire temporary staff and pay recruitment agency fees. This could have impacted cashflow which may have led to orders not fulfilled or additional borrowing to met the deficit. Additional borrowing when a key employee is no longer around may take time to arrange, or probably not be granted.
Key man insurance as a safety net
Joe and Farnk established a plumbing firm, New Depths Ltd, 5 years ago and are equal directors / shareholders in the firm. Both are involved in the day-to-day running of the firm. They employee five other plumbers. Neither of their next of kin have the requisite skills to run a plumbing business.
They decide to set-up policies to cover each of their lives, so should the worst happen, their families will be looked after and the firm can continue to carry on.
The keyperson insurance policies are set up under a business trust, with a Cross Option agreement. This means that should one of them die, the money goes to the firm and the share of the company to their respective spouses. This sounds like completely the wrong way round, as the spouses want the cash and the surviving Director wants the shares. This is where the Cross Option agreement comes in, as should one of the parties exercise their option to enforce the agreement (in real life, both parties are keen to do this) then the other party has to comply. This agreement means that the family have to sell their shares to the remaining Director/Partner for the amount of the insurance payout. This enables both sides to get what they want. The spouse and family can get on with their lives with no money issues, and the surviving Director has control of the company.
There are many variables to consider, which is where we can help. We can put you in touch with an expert in the field of business and keyman insurance, who can then explain the various options available to you, allowing you to ensure that anything you may decide to do is right for your circumstances. All our independent advisers source the whole of the market to secure the correct deal for you.
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