Top 5 Insurers for Key Person Insurance in NZ – 2024
Navigating the realm of Key Person Insurance? If you are, chances are you’re probably a proactive business owner who wants to ensure the stability of your business. That’s great! What’s also likely is that you may have read about Key Person insurance before and found it to be confusing and catastrophically boring.
This article is meant to rectify that by being simple, informative and dare we say it, ‘mildly interesting’. I’ll let you be the judge of that last bit...
Below we answer many common questions about Key Person Insurance, including:
Why have it?
What insurers in NZ offer Key Person cover?
Which NZ insurers are best for Key Person cover?
How do I get some in place?
More
Let’s dive in!
Insurers in NZ that offer Key Person cover.
What is Key Person Insurance?
Key person insurance is a type of insurance that a business purchases on the life of a key individual within the organization. The key person is typically someone whose skills, knowledge, experience, or leadership is considered crucial to the success and financial stability of the company. This individual could be a business owner, founder, executive, or any employee whose contributions are essential to the operation of the business.
Think, do you have someone in your company that is critical to the operation of the business? What would happen if they suddenly couldn’t work anymore, from death or disability? How long would it take to find an equivalent replacement? What would happen to company profits and revenue in that time?
The purpose of key person insurance is to provide the business with financial protection in the event of the death or incapacitation of the insured key person. If the key person passes away or becomes unable to work, the insurance policy pays out a benefit to the business. Usually, this benefit is a lump sum, however options for monthly benefits are available if a company has ongoing payments such as leases which need to be paid monthly.
What insurers offer Key Person Insurance in NZ?
Partners Life
Chubb
AIA
Asteron
Fidelity Life
Which insurer has the best Key Person Insurance Policy?
All 5 insurers have the products which will cover you and your Key People, however there are some key differences as the above table shows.
Below are some scenarios and which insurer may suit you best:
“Price is my main concern” - Chubb
Usually Chubb is often the most cost effective solution for many demographics (at time of writing).
“Policy strength is my main concern” - Partners Life
The Partners Life long-term disability benefit is a significant draw card for those wanting a strong policy that goes above and beyond the industry standard. The price isn’t wildly different, but you will pay more in most cases.“I’m new to business” - AIA or Chubb
Both have specific Key Person policies to suit businesses that are less than 3 years old. Some restrictions exist.“I want an insurer that’s easy at claim-time” - Partners Life or Chubb
We have personally found both to show great flexibility & understanding during claims. This is important as claims regarding health, and specifically ongoing health can be complicated, so it pays to have a broker that can advocate for you and an insurer that is accommodating.
If your business has an international presence, then it may make sense to go with an insurer which also has one. AIA or Chubb are safe choices in this regard as they are incredibly established having an international presence and strong financial ratings.
Partners Life also have a specific insurance product call ‘Permanent Loss of Key-Person'. It is comprised mainly Life Insurance & Total/Permanent Disablement Insurance (TPD), however it also includes a ‘Long-Term Disablement’ benefit which isn’t seen elsewhere in the market. You are far more likely to claim on this benefit than TPD as the claiming criteria is based around 9 months or more of disablement, rather than fully permanent disablement. This added strength in policy comes at a premium however and as such Partners Life is generally more expensive.
Get a Key Person quote from the Insurance Experts.
What are some other names for ‘Key Person’ insurance?
Key person insurance itself is often an umbrella term used to describe a collection of insurance benefits that can be used to protect critical people within your business. Often the actual insurance benefits behind ‘Key-Person insurance’ are:
Total Permanent Disablement Insurance (TPD)
Monthly Disability (‘Loss of Revenue’ – Partners Life, ‘Business Continuity’ – AIA, ‘Business Expenses’ – Fidelity Life, ‘Business Disability’ – Asteron, ‘Monthly Disability’ Chubb)
Other names for “Key-Person Insurance’ include:
Executive Insurance
Business Life insurance
Key Executive Insurance
Key Man Insurance
Key Employee Insurance
Key Worker Insurance
Key Contributor Insurance
Business Continuity Insurance
Corporate-Owned Life Insurance (COLI)
Top Talent Insurance
Leadership Protection Insurance
Business Succession Insurance
Why should my business have Key Person Insurance?
When a business loses its sole trader, a key employee, an owner or a business partner, the consequences can be dramatic. Profits can fall, loans may have to be repaid at short notice or, at worst, the future viability of the business can come under threat. Put simply, having a financial compensation that is paid to the company if any of this happens can ensure the company survives, employees still get paid, and bills aren’t missed.
This financial payout can be used to cover various expenses, such as:
Recruitment and Training: To hire and train a replacement for the key person.
Loss of Revenue: To compensate for the potential loss of income or profits during the transition period.
Debt Repayment: To cover outstanding business debts.
Customer Confidence: To reassure clients, customers, and stakeholders about the continuity of the business.
Key person insurance is a risk management strategy that helps businesses mitigate the financial impact of losing a critical team member. It can be particularly important for small or closely held businesses where the departure or loss of a key individual could have a significant impact on the overall success and stability of the company.
“Elan helped review our insurance and saved us a considerable sum each month” - Kendal Dunlop
What businesses need Key Person Insurance?
Key-person insurance can be beneficial for a variety of companies, but it is particularly relevant for businesses where the contributions of one or more key individuals are critical to the company's success and financial stability. Here are some types of companies that may find key-person insurance valuable:
1. Small and Medium-Sized Enterprises (SMEs): In smaller businesses, the loss of a key person can have a disproportionately large impact on operations. Key-person insurance can help SMEs manage the financial consequences of such an event.
2. Closely Held or Family-Owned Businesses: In businesses where a few individuals, often family members, play crucial roles, the death or incapacity of one of these key individuals can have significant implications for the company's future. Key-person insurance can facilitate a smooth transition and provide financial support during such times.
3. Startups and Emerging Businesses: Young and growing companies often rely heavily on the expertise and leadership of key individuals. Key-person insurance can provide financial protection and stability, allowing the business to navigate challenges and continue its growth trajectory.
4. Professional Services Firms: Businesses in fields such as law, accounting, consulting, and other professional services often have key individuals with specialized skills and client relationships. Key-person insurance can help these firms address potential disruptions caused by the loss of a key professional.
5. Technology Companies: In the tech industry, where success can be closely tied to the vision and expertise of key individuals, having key-person insurance can be crucial. It helps ensure that the company can weather the impact of the loss of a key founder, executive, or developer.
6. Companies with Key Sales Personnel: Businesses that rely heavily on the sales and relationship-building skills of key individuals may find key-person insurance valuable. The insurance proceeds can be used to manage the impact on revenue and maintain customer relationships during a transition.
7. Companies with Key Researchers or Innovators: Organizations engaged in research and development, innovation, or creative endeavors may have key individuals whose knowledge and contributions are vital. Key-person insurance can provide financial support to sustain ongoing projects and initiatives.
8. Companies with Personal Guarantees: If key individuals have personally guaranteed business loans or financial obligations, key-person insurance can help the company meet these obligations in the event of the individual's death.
It's important for each business to assess its unique circumstances and identify the individuals whose absence could pose a significant risk. Key-person insurance is a strategic risk management tool that allows companies to protect themselves financially and ensure continuity in the face of unexpected events involving key personnel.
How much Key Person Insurance should my business have?
This answer is often built up from many factors that you can discuss with your broker. The best way to come to a come to a number is to hypothetically play out different scenarios in your head based around your key-people and what flow-on effects this could have on the business.
Ask yourself, “what would happen if Bob suddenly couldn’t work for us?”
Some critical factors to consider include:
Is the Key Person responsible for finding new business. Is future company revenue going to be affected?
How long will it take to find a replacement person? What losses could the company incur in that timeframe?
Can anyone else at the company temporarily fill their role & do what they did? Will that employee have the skills or time to do the job?
Company debt
Company cash levels/liquid assets
Company expenses e.g. Employee wages/expenses
Company revenue
How much does Key Person Insurance Cost?
Key-Person insurance is often comprised of Life insurance, Total Permanent Disability (TPD) insurance & Disability Insurance benefits. The underlying rate for Key-Person is therefore based on these individual benefits added together (along with any other insurer-specific benefits).
The cost is dictated by your age, sex, smoker status & amount of cover you are applying for (much like any personal life insurance). As you get older the statistical inevitability that you have a serious health issue increases, and therefore so does the cost of your key-person insurance.
Here are some examples of cost, quoted in Jan 2024:
John – 42yr old male, non-smoker- manager of a construction company employing 10 people.
John is critical to the operation of the business and holds many of the relationships with developers and other business sources which drives a lot of the income for the company.
It has been calculated that $400,000 of Key-Person Insurance on John is appropriate to cover the risk of him passing away or becoming permanently disabled. This is comprised of $400,000 of Life Insurance and $400,000 of Total Permanent Disablement Insurance (TPD).
John - $400k Business Life Insurance + $400k TPD Insurance:
Chubb - $66.36/month
Partners Life - $73.85/month
AIA - $74.04/month
Over 30 years experience | Receive a quote from the business insurance experts
How is Key Person Insurance different from Personal Insurance?
The available underlying benefits previously discussed (Life, Trauma, TPD, Monthly Disability) are the same for both, however the beneficiary is the business, rather than an individual.
Personal risk insurance policies can provide funds to replace the loss of someone’s personal income and help pay their personal expenses, such as a mortgage repayments or groceries. The difference with business risk insurance is that it enables the business to continue if the owner or another key person were unable to work in the business due to sickness, injury or death.
Can new businesses get Key Person Insurance?
Yes. Insurers like AIA or Chubb have business startup options which give new businesses the opportunity to receive cover despite not having history of operating and earning. Talk to your broker about this option.
For most insurers, a new business is one that has been operating for less than 3 years.
What are the limitations of Key Person Insurance?
While key-person insurance can provide valuable financial protection for businesses, it also comes with certain limitations and considerations. Here are some limitations and factors to keep in mind:
1. Exclusivity of Coverage: Key-person insurance only covers the specific individuals identified in the policy as key persons. If other key individuals are not named in the policy, their absence will not be covered. It's crucial to regularly review and update the policy to reflect changes in the organization's key personnel.
2. Limitation on Coverage Amount: The coverage amount of key-person insurance is typically based on the financial impact the loss of the key individual would have on the business. However, there may be limitations on the maximum coverage amount, and it may not cover all potential financial losses. Often for monthly benefits this maximum is $50,000/month for up to 3 years. For Lump Sum benefits this can range from $6-10mil per Key-Person.
3. Premium Costs: Key-person insurance premiums can be relatively high, especially for businesses with key individuals who are older or have pre-existing health conditions. The cost of premiums may be a consideration for smaller businesses with limited budgets.
4. Underwriting Requirements: Insurers may impose certain underwriting requirements, such as medical examinations and financial assessments, before issuing key-person insurance. This process can be time-consuming however your broker should help make this easy.
5. Long-term disability: Key Person insurance is usually comprised of Life and TPD insurance. Some insurers, like Partners Life, also include ‘Long-term disability’ in their covered conditions which means that a payout could occur without the disability being permanent. This is a significant increase in policy strength, however usually it comes with an increase in cost.
Is Key Person Insurance Tax Deductible?
Yes, however please check with your accountant for advice specific to your situation.
It’s an expense paid for by the business to protect the business and it’s assets (people), almost like insurance on a fleet of company vehicles.
How should a Key Person Insurance policy be structured?
With any insurance policy, the owner should be the person/entity which needs the protection.
In the case of Key-Person insurance, the entity needing protection is your business/company.
Therefore, the policy is structured with the company as the policy owner (signed by the main shareholders/owners of the company). The policy then can list as many key-people under it as is required (called Lives Assured).
The company pays for the policy.
We make sorting your insurance easy! No brokers fees or hidden costs
Can I add or remove people from the policy?
Yes absolutely. No matter which insurer your policy is through it can be modified to add or remove people at whatever time the company requires. Your broker should help you with this.
If new people are being added to the policy they will need to fill out the application form along with the medical questions. Also, if an existing person on the policy is seeking to increase their cover, they may also need to redo an application depending on the size of the increase.
Removing people from the policy can be done quickly and easily with the help of your broker.
How to Apply for Key Person Insurance?
1. Chat.
Talk to an insurance broker (such as Elan) and organise a time to chat about your business.
During the chat the broker can ask you questions about your business, what you do, how you operate, your staff etc. For larger and more complicated companies, an in-person or Zoom meeting would certainly be required.
(Note: Many insurance brokers do not offer Key Person insurance or other employee business benefit insurance as it is generally more complicated than family life insurance situations and often takes a higher degree of accreditation with the insurers. Make sure you are talking to someone with experience dealing with business insurance and also someone who is willing to say if you don’t actually have a need for it.)
2. Quote.
The Insurance Broker will usually then go away and using the data gathered in the first discussion create a report with recommendations and quotes from the various insurers.
Usually you’ll have another discussion to go over the recommendations and answer any questions you may have.
3. Application.
Once a conclusion has been reached on the best insurance for your business, an application can be completed by all the covered people. That means that all key-people listed under the quote will need to do an application.
The application will usually take anywhere from 30-60 minutes and be comprised of basic information on the business along with questions on past health history and any ongoing health issues.
4. Sorted!
The insurer then processes the application and decides to either issue the policy, request more information (such as company financial statements), or in some rare circumstances can choose to decline the application if there are many serious health issues at play.
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Business Insurance Advice from the industry experts…
I have 35 years of direct insurance experience and have specialized in Key Person & other ‘health based’ insurances.
Elan prides itself in our honest and easy-going approach whilst maintain professionalism at every stage of the process. If we feel you don’t actually require cover, we’ll say so.
I can help business owners and families protect their most important people and will be there for you at claim time.
Richard Pykett
Independent Insurance Expert | Founder of Elan Insurance
