Income Protection is an essential policy for insuring a persons income if they are unable to work. However, if you have an employee essential to the running of a business, what happens to the business is they aren’t able to work for that period of time?

A key person is someone whose inability to work is likely to result in a reduced revenue coming into the business. This may be an owner, but may also be a star employee. Key person insurance is an insurance policy taken out by a company on an employee to ensure the entity can continue to trade and be profitable.

These policies can be taken out to cover the same things a personal policy can cover. Personal events such as death, total and permanent disability or trauma/critical illness cover can all be utilised to ensure the business can run as effectively or efficiently as possible without the key person present.

This benefit can be used for things such as:

  • Paying expenses to hire a replacement
  • Replace revenue generated by that person
  • Repay a loan owed
  • Compensate shareholders for a fall in business value

There are a few important factors to take into account when looking at these policies. It can be difficult to put a value on some of these factors within a business. If a business loses capital, can the balance sheet be adjusted by another method? If a business is losing revenue, can this be replaced by manipulating other factors? Key Person insurance can fill the gap between personal income and business income.

If you require help with understanding what’s best for you, the team at Superannuation Advice Australia can help.  Contact us today!