Continuity Protection
Continuity Protection is relevant for all businesses that would have financial problems if a key member/employee of that business dies or become critically ill and are unable to work within the business. It will ensure that the business can successfully continue without them.
The questions?
- If your business experienced a significant ‘disturbance’, how much cash would the business need? Is it immediately available?
A ‘disturbance’ is a significant/notable event, such as:- your premature death or absence from the business through illness, the premature death or illness of your fellow business owners, anyone else who is a vital part of your business because of their skills, abilities and expertise?
- Such an event could be disastrous for the business and create many financial issues. What cash would be available to help overcome these events?
- What would happen if you, your fellow business owners, or any other vital individual were not around? How much cash would you require to overcome this? Is it readily available?
- Where will that cash come from – the business bank account, cash flow, or other sources?
- How certain are you that funds from other sources are available and guaranteed?
The solution.
After evaluating your business we will determine what the impact would be financially on your business should key people within it die or suffer a critical illness. We will offer a tailored solution in the form of key person protection.
Key person protection allows a business to insure against the financial loss it may suffer if a key employee (also referred to as a ‘key person’) dies, is terminally ill or suffers a critical illness. A key person is an individual whose skill, knowledge, experience or leadership contributes significantly to the company’s continued financial success.
You can buy insurance to financially protect your business against the death or serious illness of a key person. You or your business will be the policy owner.
The key person is the life assured. The business is protected and receives the proceeds of any claim.
Why Businesses need it?
The adverse financial consequences that can result from one (or more) of your key people dying or being diagnosed with a critical illness can be huge. The shock to the business and the speed of unfolding financial issues that follow can have a severe impact on even the most successful business.
The case study.
Jim Bailey is the Sales Director of EZE Electronics. He has been with EZE for five years. He has established a network of industry contacts and built strong business relationships with five of EZE’s largest customers. He is essential to the success of the business and has a salary of £130,000 per annum as well as a bonus of up to 50% of salary, dependent upon sales targets being met, Jim unexpectedly suffers a serious heart attack and, sadly, dies.
WITH KEY PERSON PROTECTION IN PLACE
Two years ago, EZE took out key person cover on Jim for a death benefit worth £700,000, based on a maximum of five times Jim’s salary plus annual bonuses. The policy was a short-term insurance lasting five years, and cost a premium of £59.04 per month*. EZE took out the key person insurance to cover any potential loss of profit caused by the loss of Jim through serious illness or death, and to contribute towards the cost of recruiting a suitable replacement. In addition, EZE also arranged ‘death in service’ benefits and a pension for Jim’s wife and two children**.
WITHOUT KEY PERSON PROTECTION
Although the company was in a healthy trading position, the loss of Jim resulted in an estimated fall of 20% in profits for the financial year in financial year in which he died. This put the company’s financial position at risk, significantly reducing the amount of share dividend to the shareholders.
This is an example price based on the industry average paid in March 2015 for a five-year insurance policy, for a 46-yr old non-smoker. This case study was provided by AIG insurance company and is used as part of their marketing material.
