Case Studies

Business Insurance - Key Person Insurance Case Study

Tom operates a large manufacturing business. He partly contributes his success to the skill and commitment of his production manager Simon. Tom has estimated that in the event of Simon prematurely dying or suffering a serious medical illness or Total Disablement that his turnover would reduce by up to 20%. He believes that it could take up to a year to replace Simon with someone of a similar skill and ability.

Tom sought the advice of a personal insurance adviser who recommended establishing key person cover on Simon covering specific events such as Death/TPD and serious medical illness.

Together with his adviser, Tom estimated that the loss to the business over a year due to Simon’s absence would be $200,000 (being the loss of turnover) plus his salary of $150,000 totalling $350,000.

With Simon’s consent, the business established an insurance policy on Simon for Life, TPD and Trauma for $350,000 which in the event of a claim would see these funds paid directly to the business to offset their business loss.

With appropriate structuring and documentation, Tom’s business was able to claim a tax deduction for the insurance premium in the full knowledge that Tom's business will be protected from a financial loss in the absence of Simon.