The insured party whose loss would present a risk must be identified. It might, for example, be the person who:
- Generates or is responsible for producing a significant share of the business’s sales;
- Monitors the smooth running of all production departments;
- Drives the business’s strategic direction, defines future development priorities, etc.
Hence the description “key person”. Insurers offer businesses term insurance policies to provide protection from the consequences of their absence. Individuals likely to fit this description should be identified based on each business’s specific circumstances.
In practice, it means examining the business’s organizational and operational arrangements, the legal relationship between the business and the “key person”, and the qualities and skills the employee possesses (knowledge and proficiency in an art, science or technique directly associated with the company’s objects). The most common situation is that of the individuals(s) who run small and medium-sized businesses.
Note: Insurance policies of this kind are exempt from deductions of 20%/31.25% on the capital paid in, liable to be deducted when the insured person dies.