Protect your Business from the loss of Key People

In the dynamic landscape of New Zealand’s business environment, effective risk management is a cornerstone of sustainable operations. Insurable risks, especially those related to key individuals and general staff, play a pivotal role in maintaining financial stability and ensuring the continuity of business operations. Here’s an exploration of common insurable risks and how businesses in New Zealand can address them:

1. Key Person Loss:

  • Issues:
    • Debt, project, or incomplete work due to the death or permanent disability of a key team member.
    • Ongoing expenses and potential business interruption.
    • Impact of temporary disability on Gross profit.
  • Solution: Key Person Insurance provides financial protection to businesses in the event of the loss of a key team member due to death, disability, or critical illness. It ensures that the business can navigate challenges, cover debts, and maintain cash flow during unexpected disruptions.

2. Owner-Manager Risk:

  • Issues:
    • Uncovered overheads.
    • Incomplete work affecting revenue.
    • Owner still requires income.
  • Solution: Business owners can mitigate personal risk through income protection or a business income policy. These policies cover fixed overhead costs, providing breathing space for the business while the owner-manager recovers. This approach prevents additional financial pressure on the business and facilitates a smoother recovery.

3. General Staff Loss:

  • Issues:
    • Slow return to work for sick staff.
    • Health issues affecting staff.
    • Income issues for staff members.
  • Solution: Staff wellbeing programs and medical insurance can facilitate prompt treatment and support staff in returning to work. Offering income protection insurance for staff members ensures financial security in case of sickness or injury, promoting employee retention and well-being.
  • For More Information about

4. Shareholder Loss:

  • Issues:
    • Shareholder’s estate seeking to realize the investment.
  • Solution: A well-structured shareholder buyout agreement, backed by insurance, ensures a smooth transition in the event of a key shareholder’s exit. The agreement should include a predetermined formula for business valuation and coverage for the buyout to avoid disputes and financial strain on the remaining shareholders.

Key Person Cover:

How Does it Work?

  • When a key employee covered by the policy passes away, develops a critical illness, or becomes disabled, the insurance company pays a lump sum or income to the business. This financial support covers expenses such as hiring and training replacements, lost profits, and debt payments.

Who Needs Key Person Insurance?

  • Any business heavily reliant on one or a few key individuals should consider Key Person Insurance. This includes owner-operated small businesses, startups with visionary founders, and established companies with critical executives.

How Much Coverage Do You Need?

  • The coverage amount depends on factors such as the key person’s role, contribution to revenue, and potential financial impact. Consulting with a financial advisor or insurance agent can help determine the appropriate coverage.

How Much Does it Cost?

  • The cost varies based on factors like age, health, occupation, and coverage amount. Premiums are generally tax-deductible, offering a financial benefit to businesses.

How to Get Key Person Insurance?

  • Businesses can purchase Key Person Insurance through specialized insurance companies or brokers. Comparing quotes ensures optimal coverage at an affordable rate.

In conclusion, embracing insurable risk management strategies, especially through Key Person Insurance, is a prudent investment for New Zealand businesses. These measures not only protect against unforeseen challenges but also contribute to the resilience and sustained success of enterprises in this dynamic business environment.

Why should 2 or more business partners have a Partnerahip or shareholder buyout agreement and insurance to fund that aggreement

A Shareholder Buy-Sell Agreement, also known as a Buyout Agreement, is a legally binding contract that outlines what happens to a business partner’s shares in the event of certain triggering events, such as death, disability, retirement, or voluntary departure. Combining a Buy-Sell Agreement with Lump Sum life insurance / Total Permenant Disablement (TPD) Insurance to fund the agreement is a prudent strategy for several reasons:

  1. Smooth Transition of Ownership:
    • In the event of a triggering event, such as the death of a business partner, a well-drafted Buy-Sell Agreement ensures a smooth transition of ownership. The agreement specifies how the deceased business partner’s shares will be sold or transferred.
  2. Financial Security for Heirs:
    • Life and TPD insurance provides the necessary funds to facilitate the buyout of a deceased partner’s shares. This ensures that the deceased partner’s heirs receive fair value for the business interest without causing financial strain on the surviving partners.
  3. Avoiding Disputes and Uncertainty:
    • Without a clear agreement in place, disputes among the remaining partners or between the surviving partners and the deceased partner’s heirs could arise. A Buy-Sell Agreement helps avoid uncertainty and potential legal battles by providing a predetermined process for the transfer of ownership.
  4. Valuation Methodology:
    • The agreement typically includes a valuation methodology to determine the fair value of the business interest. This helps prevent disagreements about the value of the deceased partner’s shares.
  5. Maintaining Business Continuity:
    • A properly funded Buy-Sell Agreement ensures that the business can continue operating smoothly without disruption, as ownership transitions are predetermined and funded by the life insurance proceeds.
  6. Estate Planning and Liquidity:
    • For the deceased partner’s estate, having a clear buyout process in place provides liquidity and avoids potential liquidity issues that could arise if the business interest is illiquid or difficult to sell.
  7. Cost-Efficient Funding with Life Insurance:
    • Life and TPD insurance is a cost-efficient way to fund a Buy-Sell Agreement. The surviving partners can use the life insurance proceeds to buy out the deceased partner’s shares without having to allocate significant cash reserves for this purpose.
  8. Legal and Financial Protection:
    • The agreement provides legal protection to all parties involved, outlining the terms and conditions of the buyout. It offers financial protection by ensuring that funds are available when needed.

Before implementing a Shareholder Buy-Sell Agreement and life insurance funding, it’s essential for business partners to consult with legal and financial professionals to ensure that the agreement aligns with their specific needs and complies with relevant laws and regulations.

The description you provided outlines some common Owner-Manager Risks and suggests a solution involving income protection or a business income policy. Let’s delve a bit deeper into the issues and solutions mentioned:

Owner-Manager Risk Issues:

  1. Uncovered Overheads:
    • Businesses have fixed overhead costs such as rent, utilities, insurance, and salaries that need to be covered even during challenging times or when the owner is unable to work.
  2. Incomplete Work Affecting Revenue:
    • If the owner-manager is unable to fulfill their responsibilities due to illness or other reasons, it can lead to incomplete projects or tasks, affecting the overall revenue generation of the business.
  3. Owner Still Requires Income:
    • The owner-manager relies on the business for their income. If they are unable to work due to illness or injury, it can create financial strain on both the owner and the business.

Solution: Income Protection or Business Income Policy:

  1. Income Protection:
    • Income protection insurance is designed to replace a portion of the owner-manager’s income in the event they are unable to work due to illness or injury. This provides financial support to cover personal living expenses while the owner recovers.
  2. Key Person Disability Insurance:
    • This type of insurance is designed to provide financial protection to a business in the event that a key person, such as the owner or another essential employee, becomes disabled and is unable to work. The insurance provides a regular monthly payment to the business to help cover ongoing expenses during the disabled individual’s absence.
  3. Business Income Policy or Business Interruption Insurance:
    • Business interruption insurance typically covers the loss of income that a business may experience due to a covered event, such as fire, natural disasters, or other perils. It is not specifically tied to the disability of a key person.
  4. Buisness Overheads Coverage
    • “Key Person Business Overheads Cover” is a type of insurance designed to protect a business’s ongoing expenses and overheads in the event that a key person becomes unable to work due to illness or injury. This coverage is particularly relevant for small to medium-sized businesses that heavily rely on key individuals for their day-to-day operations.

Key Benefits:

  1. Coverage of Fixed Overheads:
    • Both income protection and business income policies can help cover fixed overhead costs, ensuring that essential business expenses are met even if the owner is unable to contribute actively.
  2. Breathing Space for Business:
    • By having a policy in place, the business gains financial breathing space. It allows the business to continue operating and meeting its financial obligations while the owner-manager is recovering.
  3. Preventing Additional Financial Pressure:
    • Insurance coverage prevents additional financial pressure on the business during the owner-manager’s absence. This is crucial for maintaining financial stability and preventing potential business disruptions.
  4. Smoother Recovery:
    • With financial support in place, the owner-manager can focus on their recovery without the added stress of financial strain. This contributes to a smoother recovery process for both the individual and the business.


  • It’s important for business owners to carefully review the terms and conditions of the insurance policies, including waiting periods, coverage limits, and exclusions.
  • Consulting with insurance professionals can help tailor coverage to the specific needs of the business and its owner-manager.

Implementing these risk mitigation strategies through insurance provides a safety net for businesses, ensuring financial stability during challenging times.