Key Person Insurance.
Key Person Insurance is designed to protect your company profits in the case of an untimely death or disability of a top salesperson, executive or business owner.
Key Person Insurance provides peace of mind to business owners and shareholders alike, knowing that the business can continue operating without major disruption in the event of the loss of a key employee. If death or disability strikes your company, Key Person Insurance may be the difference between the company’s demise and its ultimate success.
Shareholder protection insurance is designed to protect each of the shareholders of a business. On the death or diagnosis of a critical illness of a shareholder, the other shareholders receive a cash lump sum which they can then use to buy the affected shareholder’s share.
This method ensures that the affected shareholder’s family receive their part of the inheritance as quickly as possible whilst there is minimum disruption to the company.
A company’s Articles of Association deal with the issues of transferring and selling shares. In most cases the deceased or critically ill shareholder’s share passes to their family. From the company’s perspective this means that not only do they have a new shareholder, but they also have to pay that shareholder a percentage of company profits each year. This can of course be problematic if the new shareholder adds little or nothing to the running or profitability of the company. Additionally, it could also mean that the new shareholder would look to sell their share to a third party whom the company might not want to be in business with.
The likelihood is that the surviving shareholders will want to retain control of the company. Shareholder Protection Insurance allows the company to do this. Many companies adopt a pre-emption clause in their Articles of Association which allow the shareholders the right to buy the shares of the deceased or critically ill shareholder. Companies without Shareholder Protection Insurance often try to borrow the money from banks to do this. However, not only can this create a large debt for the company, but the banks can be reluctant to lend if they feel that the deceased or critically ill shareholder was key to the running of the business.