Every business relies on its people, but in some businesses, there may be individuals who are absolutely integral to its success. Without these individuals, the business could struggle to stay profitable, or in a worst-case scenario, cease to exist altogether.

Key person insurance is a type of business protection, which is designed to help protect a company should a key individual die or become critically ill. Other types of business protection include shareholder and partnership protection.

Life insurance is provided by Zurich Assurance Ltd

If you're interested in business protection cover, please speak to your financial adviser. If you don't have an adviser, you can call LifeSearch on 0203 764 0166 to talk about Zurich business protection products, or you can find an independent adviser on the British Insurance Brokers' Association (BIBA) website.

Many businesses take out insurance policies, such as liability insurance, which do not provide any cover for the loss of a key individual due to death or critical illness, this is where business protection comes in.

Although business protection can benefit companies of all sizes, it is perhaps most important for small and medium-sized businesses (SMEs), where one or two key personnel can have a huge impact on the success of the company.

However, whatever the size of your business, you may have individuals upon whom you depend – perhaps because they generate a significant proportion of your revenue.

If they are suddenly unable to work due to death or critical illness, the future of your business could be thrown into uncertainty. If their role is highly skilled or highly specialised, finding a replacement quickly could be expensive.

Key person insurance

Key person insurance can provide protection in the event of an unexpected loss of a key person, due to death or critical illness, whose absence would directly affect your business’ ability to generate profits. This type of business protection policy could be used to cover the cost of recruiting a suitable replacement, or to ease overall loss of profit. Roles covered by key person insurance typically include company directors, individuals in important management positions, and highly skilled/specialist employees.

How much key person insurance cover do I need?

Firstly, you need to identify your business’ key people, by assessing their skills, knowledge and leadership impact. You then need to quantify each key person's contribution to your profit which is used to determine an appropriate sum assured.

Shareholder protection

Shareholder protection policies enable limited companies, or their shareholders, to purchase the shares from a co-shareholder who has died or been diagnosed with a critical illness. This helps to ensure the remaining owners can retain control of the company and the critically ill shareholder, or their estate in the event of death, receive adequate compensation for their interest in the business.

Shareholder protection can be arranged in various ways, depending on the size and structure of the company. It is important to seek advice to ensure your policy is structured correctly, including any associated trust deeds and option agreements which govern the transfer of shares and policy proceeds.

How much shareholder protection cover do I need?

Firstly, you need to determine the value of your business. The method typically used is a multiple of pre-tax net profit. The total value of the business should then be split accordingly to reflect the shares of each shareholder with each then taking out a policy for this sum assured.

Partnership protection

Partnership protection differs from shareholder protection as there are no shares at stake, only the value of a business interest. It is intended to serve broadly the same purpose as shareholder protection and provide the remaining partners with the funds to purchase the critically ill, or deceased partner’s interest in the business. There are a number of ways to set up partnership protection, so it is important to seek advice to ensure the cover and any associated documents are structured correctly.

How much partnership protection cover do I need?

As with shareholder protection, you need to determine the value of the partnership – the same method of using pre-tax net profit typically applies. The total value of the partnership should then be split accordingly to reflect the value of each partner’s interest in the business with each then taking out a policy for this sum assured.

Zurich business protection offers a variety of options with policies that pay out only upon death, policies that pay out upon death or diagnosis of a critical illness and policies that only pay out on diagnosis of a critical illness. If critical illness is selected you have the option to choose between Zurich’s standard critical illness offering or Zurich Critical Illness Select which covers an increased number of conditions along with other features and benefits. You will also have the option to include other benefits such as children’s cover, enhanced children’s cover, waiver of premium, total permanent disability and renewable cover. An adviser will be able to explain these benefits to you in detail.