Category: Basics
Key Person insurance compensates the business for lost productivity when a critical contributor dies or becomes disabled; shareholder protection insurance funds the buyout of a deceased or disabled owner's equity under a buy/sell agreement. They use the same underlying products but solve different problems.
The panel is AIA, Zurich, TAL, OnePath, ClearView, NEOS, Encompass, Acenda, and Futura. Both products use standard Life, TPD, and Trauma cover; the difference lies in ownership, beneficiary structure, and documented purpose.
| Feature | Key Person insurance | Shareholder protection insurance | |---|---|---| | Risk addressed | Loss of revenue, recruitment cost, debt repayment | Funding a forced equity buyout | | Trigger event | Death, TPD, or Critical Illness of any critical employee or contractor | Death, TPD, or Critical Illness of a shareholder, partner, or unit holder | | Policy owner (typical) | The business (company, partnership, trust) | Cross-owned (each owner insures each other) or business-owned via insurance trust | | Beneficiary | The business | The surviving shareholders (cross-owned) or the business or trust (self-owned) | | Use of proceeds | Recruitment, training, revenue replacement, debt repayment | Purchase of the deceased or disabled owner's equity stake | | Underpinning legal document | None required by the insurer (recommended at claim time) | A written buy/sell agreement is essential | | Tax treatment | Per ATO TR 2009/2 capital or revenue analysis | Typically capital; CGT exemption under ITAA 1997 s118-37(1)(a) often applies | | Sum insured driver | The key person's value to the business (revenue, expertise, relationships) | The pre-agreed valuation of the deceased's equity stake | | Required at the time of application | Financial underwriting, key-person valuation report | Buy/sell agreement, valuation methodology, ownership documentation |
Both products use the panel's standard cover types:
The insurer does not issue a 'Key Person policy' or a 'Shareholder Protection policy' as a separate product line. The same Life Cover sits behind both purposes; the documentation of intended purpose and the ownership structure are what distinguish them.
for buy/sell, share purchase or business succession business insurance purposes - a written re-evaluation of the business from a qualified accountant or valuer from evidence required for key person business insurance purposes - a written re-evaluation of your value to the business from a qualified accountant or valuer.key person insurance, loan/guarantor protection, buy-sell/shareholder or partnership protection as separate triggers.a written ownership (buy/sell), share purchase or business continuation agreement, asset protection (loan guarantee) insurance, revenue protection (key person) insurance.A business with multiple shareholder-directors often holds both:
The two policies sit in parallel on the same individuals. Sum insured amounts and documented purposes are kept separate so the tax treatment of each is preserved. The total premium is higher than either alone, but the dual protection covers both operational continuity and orderly succession.
For Key Person cover, the proceeds may be assessable income (revenue purpose) or capital (capital purpose) per ATO TR 2009/2. For shareholder protection cover funding a buy/sell, the proceeds are almost always capital; the CGT exemption in ITAA 1997 s118-37(1)(a) typically applies where the recipient is the original beneficial owner. Cross-owned structures generally preserve the exemption more cleanly than self-owned (insurance-trust) structures.
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