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Key person: the business survives the unexpected

A founder, a partner, a salesperson who holds the major accounts. If that person is gone tomorrow, the business needs immediate liquidity to hold on, hire and reassure. That is exactly what key person insurance pays.

  • Capital paid to the company
  • Death and, optionally, disability or critical illness
  • Stable premiums, corporate ownership
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Hello and welcome to Sommet.

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Which coverage interests you?

You:

Key person insurance

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SOMMET PROTECTIONWhat matters deserves our full attention.
The issue

An SME's value often rests on one or two people: client relationships, know-how, personal guarantees with the bank. Losing them means falling revenue, high replacement costs and often the bank demanding repayment.

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The solution

  1. 1

    The company owns and benefits

    The company pays the premium and receives the capital tax-free, to use at its discretion.

  2. 2

    An amount based on contribution

    Salary multiple, attributable share of profits, cost to recruit and train a replacement, personally guaranteed debts.

  3. 3

    Term or permanent

    Term for the dependency period; permanent if the policy must also serve succession or a share buyout.

  4. 4

    Add-ons

    Key person disability and critical illness to cover a long absence, not only death.

Typical case (illustrative)

A 12-employee engineering firm depends on its founder for 60% of revenue. A $1M 10-year term owned by the company, for a few hundred dollars a month, would repay the personally guaranteed credit line, hire a director and bridge 18 months of transition.

Illustrative: the premium depends on age, health, amount and term. The insurer's illustration prevails.

Who it is for

  • SMEs whose revenue rests on one or two people
  • Companies with loans personally guaranteed by the owners
  • Growing businesses that want to reassure partners and creditors
  • Incorporated professionals with employees
Free analysis, no obligation

Who in your company is worth more than their salary?

The advisor quantifies the value of your key people and the cost of insuring them through the business, death and disability included.

Price my protection

Cash reserve or key person insurance?

Available capital
Company cash reserveWhatever the company managed to set aside, taxed along the way.
Key person insuranceThe insured amount, paid at death or disability, tax-free (life).
Annual cost
Company cash reserveFunds tied up that aren't working in the business.
Key person insuranceA premium, generally 0.3 to 1.5% of the benefit depending on age and health.
Effect on lenders
Company cash reserveNeutral.
Key person insuranceReassuring: continuity is funded, debt stays serviced.
Availability
Company cash reserveMay be absorbed by another need before the event.
Key person insuranceReserved for the covered event.

Common mistakes

  • 01

    Insuring death only

    A long disability of the key person is more likely than death and costs the business just as much. Consider life + disability or critical illness together.

  • 02

    Undervaluing the amount

    Count attributable lost profit, recruiting and training costs, and 12 to 24 months of transition — not just a salary.

  • 03

    Not planning the exit

    What happens to the policy if the key person leaves? Transfer to the employee (retention benefit) or cancellation should be planned.

Points to consider

  • The premium is generally not deductible; the capital is received tax-free by the company.
  • The capital dividend account lets the death benefit flow to shareholders tax-free (above the adjusted cost basis).
  • The amount must be reviewed as the business grows.
  • Coordinate with the shareholders' agreement and succession plan.

The solutions presented are for information only and rely on current Canadian and Quebec tax legislation, which may change. Sommet Protection gives no financial, tax or legal advice: the analysis is done by a partner financial security advisor, together with your accountant and legal advisors.

Frequently asked questions

Who decides how the capital is used?

The company, as beneficiary: debt repayment, hiring, maintaining salaries, share buyout under the agreement.

Can an employee be insured without knowing?

No: the insured must consent and sign the application. It is also an opportunity for a succession conversation.

Guide · 11-minute read

Protecting the business you built: the insurance guide for owners and the self-employed

The five risks that close profitable SMEs, and how to fund them for a fraction of their cost.

Read the guide
  1. 8 chapters
  2. 1. You are the most important asset — and the least insured
  3. 2. A partner's death: the scenario that divides families
  4. 3. Disability: three protections, three different roles
  5. 4. The key person worth 30% of revenue
  6. 5. Debts, guarantees and lenders
  7. 6. Tax at death on shares: the founders' file
  8. 7. A health plan for your incorporated company
  9. 8. Where to start

The solutions

Let's talk about your business

A partner SME specialist advisor calls you back for a no-fee diagnosis. Bring your shareholders' agreement and financial statements: the advisor quantifies with you.

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