Case study: Why it is important for businesses to insure its key people

During an insurance review, the business owner's Rothbury Employee Benefits Adviser discussed potential risks if he were suddenly unable to work, including:
 

• Loss of revenue: The business would struggle financially if the owner was unable to generate revenue or make critical business decisions.
   
• Personal guarantees: The owner had personal guarantees tied to business loans. If he couldn't continue running the business, there was a risk those guarantees could be called upon in a personal capacity.
   
• Contractual uncertainty: Existing contracts with clients could be jeopardised, resulting in penalties or disputes.
   
• Recruitment costs: Finding a suitable replacement with the same level of expertise would be a costly and time-consuming process.
   
• Employee retention: There was a concern that key employees might leave due to the uncertainty caused by the owner’s absence.

After thoroughly discussing the potential risks with the business owner and his wife, their Rothbury Employee Benefits Adviser recommended the following insurance coverage:

Personal cover: Life Insurance, Total and Permanent Disability (TPD) Insurance, Trauma Insurance, and Income Protection Insurance.

Business cover:

• Key Person Cover: For Life, TPD and Trauma to cover the potential loss of profits, recruitment costs, and additional expenses.
• Business Disability Cover: To provide a monthly benefit for 12 months in the event the business owner could not work.

Initially the business owner was hesitant to commit to the entire recommended coverage. However, after careful consideration, he agreed to take out Life, TPD and Trauma Cover for both the business and personally.

Just six months later, the business owner’s wife called to inform us that her husband had been hospitalised in critical condition due to a life-threatening infection. He was placed in an induced coma, with doctors giving him only a 15% chance of survival.

• Fortunately, the business owner survived, but he was unable to work for several months. During this time, the Key Person Trauma Insurance payout was made to the business, which enabled them to:
   
• Recruit a general manager: The insurance payout was used to hire a highly qualified general manager to oversee the business operations during the owner’s absence. This ensured the business continued to run smoothly and revenue was maintained.

Six months later, the business owner made a full recovery and returned to work. However, due to the business running efficiently under the management of the new General Manager, the owner was able to pursue a long-held dream. He purchased a farm on the West Coast and enjoyed seeing his contracting business grow exponentially under the new leadership.

This case highlights the critical importance of Key Person Insurance for business owners. Without the right coverage, the business would have faced financial distress, employee retention challenges, and a lengthy recovery. The insurance payout allowed the business to remain in operation and continue growing, while the owner focused on his health and recovery.