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Life insurance | Corporates | Employee Benefits

Key person protection for business continuity

Wednesday, January 05, 2022

Key person protection for business continuity

Client Results

20 year

Policy duration

$100,000

In annual premiums

$8 million

In death benefits

Background

Understanding the importance that key people play in a business, a growing tech start-up wanted to protect itself from potential business interruption should their 45-year-old Managing Director, Henry, become unable to work.  

Henry was the main driving force and founder of the IP behind the business. When the company was raising capital, Henry’s character and vision was key to capturing the attention of venture capitalists and securing the funds necessary for the start-up to survive. His role in the business was invaluable.   

Understanding how necessary he was to the business, particularly in its early days – the company wanted to protect itself from a situation in which losing their key person led to financial losses for the company.   

Such losses might include key person loss of income as well as the expected cost of recruiting and training his replacement. The sum of these losses was calculated to be $8 million.  

The solution  

The business was advised to secure a Universal Life Insurance policy with a guaranteed death benefit of $8 million. With the business listed as the owner of the policy, they were comfortable enough with their cash flows to fund the $100,000 annual premium over 20 years.  

Most importantly, Henry’s company was advised to take out key person insurance, both for the business and the key person (Henry). Doing so allowed the business to benefit from having a source of income that offsets the loss of revenue, while also enabling them to continue their growth by recruiting a skilled replacement.  

Even more, the company can protect their credit position and access the potential cash value of the life insurance policy for cash flow, retirement benefits or other unexpected expenses.  

On the topic of health, the general health and well-being of the company’s employees was also discussed. As a result, we were able to organise group health coverage that satisfied their expectations and were able to protect their workforce against any unfortunate eventualities.   

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