- 26.12.2016
- 1'45 min
- 1
Insuring a "key" man or woman to protect a business
Some companies either go out of business or scale back their operations following the death or loss of autonomy of an essential executive or employee. This "key person" could be a company director or an employee playing an essential role in the company's business activities. He or she could also be a researcher, in charge of a start-up or quite simply someone with a unique skill or expertise in a given field.
The loss of autonomy or – worse still – death of this person could have a relatively serious impact on the company's operations or even cast doubt on its long-term future. The consequences could be very severe: from a drop in business to a loss of expertise or cash-flow problems, etc.
As the expression goes, "nobody's irreplaceable"! However, certain statistics temper this assertion… Indeed, It is estimated that about 25% of small businesses go bankrupt in the year after the brutal death of their business leader!*
To protect the company from the financial consequences of a "key" person's death (or loss of autonomy), the death insurance policy is taken out by the company itself, which becomes the designated beneficiary in the event of death or loss of autonomy.
The capital paid out to the company can be used to alleviate its cash-flow difficulties, compensate for a possible drop in turnover, or fund the recruitment and training of a qualified professional to replace the deceased or incapacitated executive or employee, for example.
The final appreciable benefit of "key person" insurance resides in its advantageous tax treatment. The premiums paid by the company are entirely deductible.
Predica offers a "Key Person" policy as part of its Multi-Partner Risk Value (Valeur Prévoyance Multipartenaires) cover solution for the Regional Bank network. The number of policies taken out has risen by 12% in 2016 compared to 2015. Digitization has made it easier to access these offers.This market is opening up and gathering momentum. It is also being extended to take in VSEs and SMEs, which are becoming increasingly aware of this type of risk. All market operators are making significant moves to cover this sector.
*INSEE