Running a business is challenging and exciting. But with great rewards comes higher risk. Having the right people in place is a crucial factor in the success for any business.
The unexpected temporary absence of an owner or income generating employee due to sickness or injury can have a severe financial impact, especially for small businesses where the revenue may be generated by a few people. More importantly the cover provides you with certainty and helps you maintain control of business management and operations.
Key person income cover can be used to help small businesses protect against financial risk by providing a monthly benefit to the business for up to 12months if an insured key person is unable to work to their full capacity due to sickness or injury.
*eligibility criteria will apply when determining key person to a business
Here are some potential impacts the loss of a key person can have on your business, and how the benefits from a Key Person Income policy can be used to help your business.
Andrew and Fiona own equal shares in a physiotherapy business, Active Physio Pty Ltd. The gross profit for Active Physio is $1.5 million per annum Andrew and Fiona are each responsible for generating 35% of the gross profit ($525,000 each). Andrew becomes unwell and has been told that he may need to take 12 months off.
The business is concerned about the drop in profits and the management of Andrew’s clients. The business claims on the key person income benefit insurance. The benefit is utilised to assist with cashflow requirements and funding a locum to manage Andrew’s clients.
Tim is employed as a full time Business Development Manager by FYI Insurance Pty Ltd. He has developed relationships with many of the clients, and is responsible for generating 30% of the gross profit. His monthly remuneration is $16,250 (Salary of $195,000 p.a.).
Tim has a climbing accident and is unable to return to work in a full capacity for at least 12 months. FYI Insurance Pty Ltd, recruit a senior sales consultant to manage Tim’s clients and to develop new business opportunities. The key person income benefit on Tim’s life can be utilised towards the recruiting and ongoing wage expenses of the new business development consultant for the 12 months.