Businesses are not made successful by tangible assets, such as land, buildings, plant, equipment, stock or working capital. Rather, success depends upon the expertise of the people who put these things to work.
Key people are the most valuable asset a business can have. Their departure (especially if unexpected, e.g. due to death, disablement, or critical illness or injury) could cause havoc not only to that person’s family, but also to the business and to the lives of all who remain involved in the business.
Key person contingency strategies are designed to provide the business with money to offset the financial loss resulting from the disability or death of a key person.
This money may also be used in conjunction with a business succession plan to ensure that the business remains healthy if a proprietor/key person is unable to remain in the business. This may help to ensure the remaining business owners continue to have a viable business, but does not replace insurance needed to fund a Business Succession Agreement.