Key Person Protection

In this post, I will discuss Key Person Protection (all too often called Keyman Protection).  I will run through an example of why Key People within a business may need protecting using 2 companies – ABC Ltd and XYZ Ltd as examples.

This follows on from my 2 previous posts on business protection – Business Protection – are you covered? and Shareholder Protection – are you covered?

Key Person Protection

Key Person ProtectionWhen Bob died (in Shareholder Protection – are you covered?), he was generating 50% of the company’s £1,000,000 turnover. He had also, just before his death, lent the Business £100,000 for a new widget. This loan must be paid back to the family by the business on his death.

At ABC Ltd whilst trying to figure out what they are going to do regarding the shares, they have no idea how the Company is going to survive without Bob’s sales skills or how they are going to repay the debt. Because they have lost their key business generator, the bank is also threatening to cut their overdraft limit.

At XYZ Ltd, who were faced with similar issues, they had previously identified Key People within their Company who would have a big impact if they were no longer able to work due to death or critical illness. As well as some key members of staff who were not shareholders, Sam (a director) had been included. The Company had set up a plan to provide a lump sum that represented the loss of profits for a year and replacement recruitment costs for each of the key people. They had also implemented a plan to cover the loan that Sam had made to the Company. On Sam’s death, the Company received 2 lump sums – one to cover lost profits and protect the business and another to repay the loan to Sam’s family.

How would your company be impacted if you lost a key person?  Is your company ABC Ltd or XYZ?

If its ABC Ltd, contact me to arrange a complimentary no obligation initial meeting.

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