There are two main forms of life insurance that a business should consider. These are usually known as ‘key person insurance’ and ‘business expense insurance.’
Key person insurance
Key person insurance is a policy that covers a business in the event that a key person within the business dies or becomes disabled. In essence, it is life and/or TPD cover taken out by a business. The main difference to a standard life policy is that the business is the beneficiary of the policy.
Key person insurance policies are often taken out by business partners. The idea is that, if one of the partners dies or becomes disabled, the business will receive an amount of money which can be used to buy the deceased or injured partner’s share of the business. This allows the business to keep operating without the surviving partners being placed in financial difficulty.
The amount of the policy is typically tied to the amount of the loss that would arise in the event that the key person was lost. This will obviously differ according to the individual circumstances of the business. For that reason, you need to discuss key person insurances with your adviser.
Business expense insurance
Business expense insurance is often taken out by smaller businesses where the expenses of the business would continue to roll in if something happened to the principal. A common example is a self-employed builder. He or she might be injured or become ill and thus unable to generate income. But the expenses of the business (office costs, car costs, insurances, staff costs, etc) continue to arrive.
The amount and type of business expense insurance that your business needs depends on the specifics of your business. This is why we recommend that you discuss business insurance needs with your financial adviser.