Key Person Insurance - is your company's greatest asset protected?
November 5, 2019
You probably have insurance in place to protect your business – your offices, vehicles, products and liabilities – but what about the people that make your company successful?
Within every organisation - even our own - there are key members of staff that are vital to the continued function and progression of the company. We are all able to name at least one person the business could not function without.
This is so often the case - no matter what the industry, size or the nature of your business.
The loss of an essential colleague can wreak havoc on a business, from redistribution of duties, loss of contacts, payments becoming due or simply the breakdown of the company continuing to function as a well-oiled machine. This can have lasting effects not only for the company, but also for the employees.
There is a solution to this risk, however: Key Person Insurance.
What is Key Person Insurance?
Key Person or Key Man insurance is a life insurance policy arranged for a ‘Key Person’ within a company. This can be any individual who is vital to the continued running of the business, such as directors, sales managers, senior management or HR.
The key person is the life assured, whilst the beneficiary is the company. This means that should the insured person pass away, become critically ill or become permanently disabled, the company would receive a financial sum (depending upon the cover options selected).
Why does my business need Key Person Insurance?
Key person cover can be arranged by any company – regardless of size or turnover - but many business owners are unaware of the protection solutions available.
Cancer Research estimates 1 in 2 people in the UK born after 1960 will be diagnosed with some form of cancer during their lifetime. The average age of critical illness claimants (published by insurance providers every year) is 45-50 years old. Therefore, it is becoming ever more important to consider this aspect of protection for your business.
What can a Key Person policy be used for?
The loss or disablement of a key employee can lead to any number of situations that may threaten the survival of a company, such as:
- Recruitment and handover costs: if diagnosed with a critical illness, many of us would prefer to take time for treatment, recovery or to spend time with our families. The cost of paying sick pay, or cost of recruiting a replacement employee and conducting handover can take several months. A policy pay-out could provide the funds to pay both the outgoing and incoming employee along with any recruitment costs so that the business does not take a financial hit. These fees can be increased due to the death of a colleague making the need for a speedy recruitment a necessity.
- Replace any loss of profit: The sudden loss of a colleague can have a severe emotional impact on employees and colleagues, time off may be required and productivity may drop. This can be worsened if the person concerned is directly responsible for research/design, production, delivery of services or sales. Sales targets and order timescales may be missed; loss of commission or bonuses to employees in addition to the loss of a colleague can greatly reduce morale of a workforce.
- Offset of Debts: The loss of a key person may cause debts or orders to become immediately due. With the absence of the person responsible for generating these funds, this can leave a business in financial hardship in which a pay-out can immediately solve.
- Loss of Contacts: It is common in certain areas of business for key individuals to hold very personal and long-standing customer relationships. The loss of this person can lead to the loss of these customers and contacts, ultimately reducing the income of the business. The payout from a key person insurance policy can limit financial loss and also offset the time it may take to regain those contacts and income.
How FOCUS can help you protect your business
FOCUS works with a panel of hand-picked insurance providers that not only provide peace of mind for your business, but added-value benefits, such as accidental cover for your key person should they need to make a claim during the policy underwriting; support lines for your employee and their family to help them through a difficult time, and access to in-home help and specialist care nurses.
As the dedicated Protection Adviser at FOCUS, I can guide you through the business protection solutions available and how these can meet your company’s needs and requirements.
Madelaine Swift BSc Phys Hons, CeMAP