Case Study: Key Person Insurance
It’s a scenario no one wants to think about – but too many businesses are only one bad day away from it…
When your business relies heavily on one or two key people, what happens if life throws a curveball? This case study walks through a real-world gut-punch and the brutal fallout of not having the right protection (Key Person Insurance) in place.
THE SCENARIO
Jack and Ben are 50/50 owners of JB Electrics, an electrical contracting firm with 5 full-time tradies and a loyal book of clients.
The structure’s tidy - each has a 50% stake, split with their wives (25% each) for tax efficiency.
They both work in the business full-time. Ben’s in charge of the team and project management, while Jack – being a charismatic guy who’s well-known and well-liked in the industry – takes care of all the sales, quoting and client management.
The business turns a tidy profit, enough for each to live modestly but comfortably.
Both Jack and Ben mortgaged their homes to get the business started - some of that debt still sits over their heads.
They have Public Liability cover and some other business insurances, but no Key Person Insurance has been set up.
THE CURVEBALL
Jack suffers a massive stroke. He survives, but isn’t likely to work again. One minute he’s chatting with clients and pricing work; next, he’s in a hospital bed facing a brutal new reality.
THE IMPACT
1. Business Chaos
Jack’s out - permanently. Ben’s left-running double-speed trying to keep the lights on. Jack’s industry contacts - the pipeline of new work - are gone. Sales fall, but costs stay locked in: staff, vans, lease, servicing debt.
With both owners in the business, it was valued at $1.5 million. Now? It’s dropped like a stone. You can’t sell potential when half of its gone.
2. Ownership Tension
Jack still legally owns 50% - but he can’t contribute.
His wife (holding 25%) needs clarity and cash. Jack can’t work, but the bills at home haven’t stopped.
Ben wants to keep running the business, but can't afford to buy Jack out.
There’s no succession plan, no buy-sell agreement, no funding…
The business is stuck in limbo — there’s no clean exit for Jack, and no clear future for Ben.
3. The Personal Fallout
Jack’s role was his family’s income stream. Jack’s wife has to go and find a part-time job to work around the kids, but it’s not enough for a mortgage and day-to-day life. The family’s home was mortgaged to fund the business. Now the business can’t service its debt; and Jack can’t either.
Let’s be blunt here – money stress breaks people. It’s never just about finances – it’s about marriage, parenting, mental health…
THE MISSED SAFETY NET: KEY PERSON INSURANCE
Let’s break down what insurance cover should’ve been in place - and what it would’ve solved:
1. Key Person Income Cover
Payout: Monthly income to the business for up to 12 months.
Purpose: Keeps the business afloat while Ben finds a replacement or restructures.
Used for: Staff wages, leasing costs, operational expenses.
Result: Buys time and stability, instead of panic and reaction.
2. Debt Servicing Cover
Payout: Monthly payments to cover interest on business debt.
Purpose: Stops the debt from snowballing or putting pressure on cashflow.
Used for: Servicing the original business loans secured over the homes.
Result: Keeps things stable without needing to redraw personal lines of credit.
3. Buy-Sell (Ownership) Cover
Payout: Lump sum (for example: $750K).
Purpose: Gives Ben the cash to buy out Jack and his wife’s shares.
Used for: Clean transfer of ownership.
Result: Jack’s family gets the value he built, and Ben gets clarity to move forward.
CRAIG’S TAKE
Look, nobody plans to get taken out by a stroke or cancer or a freak accident… But you can plan for the fallout.
This isn’t about doom and gloom - it’s about protecting what you’ve worked so hard to build. Your business, your income, your marriage, your home.
Key Person Cover, Buy-Sell Agreements, Business Income Protection - they’re a crucial seatbelt for your business. You don’t need them every day, but when you do… mate, you really do.
So, ASK YOURSELF:
Could your business survive the next 3–6 months without a key person?
Could your family survive without your income?
Is your home safe, even if your health isn’t?
If you have a business partner and they went down tomorrow, could you afford to buy them out?
Our blog is not intended to be taken as personal advice and is for informational purposes only.
Before acting on this information, contact WealthHealth to ensure it is suitable for your circumstances.