Buy-Sell and Key Person Insurance

Most owner-managed and closely held businesses carry two related people-risk exposures. The first is ownership. If a co-owner dies, their equity can pass to a spouse, an estate or an outside party and the remaining owners may face a forced sale or a buyer they did not choose. The second is dependency. When a single person carries critical revenue, relationships, knowledge or leadership, their sudden absence can reach lending covenants, valuation and continuity.

Buy-sell cover is designed to provide the liquidity to fund the orderly transfer of a departing owner’s equity. Key person cover is designed to give the business funds to absorb the financial impact of losing someone it depends on, while it recruits, restructures or stabilises. Both are usually funded by life insurance, which is why structure matters as much as cover. The ownership arrangement, the agreement behind it and the way proceeds are directed all shape how the arrangement works in practice.

DKG is an advisory-led general insurance broker with specialist Life and People Risk capability. We advise before we place. We review the exposure, work through how the business is owned and run with you and your own advisers, and structure cover around the agreement that sits behind it. We do not provide legal or tax advice, and the ownership structure, the buy-sell agreement and the tax treatment of any proceeds sit with your accountant and lawyer.

What are the benefits?

• A funded answer to ownership transition, so a departing owner’s equity can be bought out rather than passing to an unintended party or forcing a sale.
• Continuity for the remaining owners, who can retain control of the business through a change they did not plan for.
• A financial buffer for the business when a key person is lost, designed to support revenue protection, recruitment, training and restructuring through the transition.
• Support where a key person underpinned a lending covenant or investor confidence, so the business has funds to manage debt or restructuring discussions.
• Cover designed to align with the agreement and ownership structure behind it, rather than a policy bought in isolation.
• An adviser who stays involved, reviews the arrangement as ownership and value change, and acts as your advocate if a claim is made.

What can it cover?

Buy-sell and key person arrangements are usually funded by life insurance and can be structured in several ways. In general terms, and subject to underwriting, terms, conditions, exclusions and policy wording, cover can be designed to provide:

Buy-sell cover

• A lump sum on the death of an owner and, subject to wording, on total and permanent disability or a defined trauma event, to fund the purchase of that owner’s equity.
• Funding aligned to cross-purchase, trustee or entity, or self-ownership structures, depending on how the agreement is written.
• Liquidity that can help the remaining owners avoid a forced sale or an unwanted external buyer.

Key person cover

• A lump sum to the business on the death of a key person, and subject to wording, on their total and permanent disability.
• Funds that can help protect revenue and profit through the transition, and support the cost of recruiting and training a replacement.
• Funds that can support debt repayment or restructuring where the person was integral to a lending arrangement.

The right structure depends on the business, the ownership arrangement and the agreement behind it. We work through the options with you and your advisers before any cover is placed.

What usually isn’t covered?

Cover responds to the policy definitions and the events the policy is written to answer. In general terms, and subject to policy wording, the following are usually not covered:

• Fraud or deliberate misrepresentation.
• Intentional self-injury.
• Criminal acts.
• Undisclosed pre-existing conditions.
• Events that fall outside the policy definitions or the terms of the agreement the cover supports.

What a policy covers and excludes is determined by the insurer and the policy wording. We set those expectations honestly before a programme is placed.

How DKG supports you

We start with the exposure, not a product. We review how your business is owned and run, identify where ownership transition and key person dependency sit, and design an arrangement that fits the agreement behind it. We work alongside your accountant and lawyer, who own the legal and tax structure, and we structure the cover to support what they put in place. We do not provide personal financial, legal or tax advice on these life-risk lines. Advice on the life cover that funds the arrangement is provided only through the appropriate licensed pathway, and the ownership structure, the agreement and the tax treatment of proceeds sit with your accountant and lawyer.

When a claim is made, complex people-risk claims can involve medical evidence, policy definitions and the terms of the underlying agreement. We act as your advocate from notification through to resolution. We help prepare and present the claim, work through the definitions and evidence and manage insurer engagement. The insurer and the policy wording determine the outcome, and we make no representation as to claim results.

DKG’s Life and People Risk practice is led by Marnie Maloney, Head of Life and People Risk. She brings more than 20 years of experience in life insurance and financial advice, with deep expertise across personal risk advice, business succession planning and corporate protection. To review ownership transition and key person risk in your business, contact Marnie via email or phone on 1800 252 926.

Related services

• Personal Life Insurance
• Total and Permanent Disability Insurance
• Employer Group Life and Salary Continuance

Other cover may be considered and additional exclusions may apply.

Important note− The information provided is general advice only and has been prepared without taking into account your objectives, financial situation or needs. When making decisions about buy-sell and key person insurance, please consider the Product Disclosure Statement.