As a business owner myself, I know the number of plates that have to be spun day-to-day to ensure operations can continue to run smoothly. But have you ever considered what would happen to your business if those key individuals who you rely on were unable to work?
Whether it’s you as the business owner, a managing director or even a skilled expert, many of us have built an organisation around someone’s ability or specialist skills. In this blog, I want to talk about a type of insurance that isn’t that widely known about – key person insurance – which could protect your business if a certain key individual was no longer available.
Key person insurance
Also called keyman insurance and keywoman insurance, this is a type of insurance that is taken out by a business and protects them against any losses that might occur if an essential member of their team was unable to work either because of a serious illness or death. Once a claim has been made and approved, a lump sum is paid directly to the business which helps them to reduce any debts, protect profits and, ultimately, continue their daily operations.
You might be wondering why key person insurance is important. Just think about the most important person in your business. What would happen in the event of their death or prolonged absence? Would your business have to deal with a gap in knowledge, experience or skills? Some of the most common effects of situations like this include an increased workload for existing employees, reduced profits and even a drop in stakeholder confidence.
One example might be a key salesperson who is responsible for 50% of your business sales. Without them, your business may face huge short-term impacts which need to be accounted for. That’s where key person insurance comes in, providing much-needed cash to replace any lost profits, help find a new member of the team and even compensate for any loss of experience and knowledge.
Who is a key person?
A key person is defined as being an individual who plays a crucial role in the day-to-day running of a business and whose absence would seriously affect the organisation. This is most likely to be a business owner or managing director but it can also be anyone who has indispensable skills, experience and knowledge including an IT manager, operations manager and even salespeople. For example, I worked with a company whose key person was a bilingual individual who was responsible for communicating with international offices. Without this employee, not only would corporate relationships suffer but partnerships and deals.
What is included in key person insurance?
Key person insurance can be taken out to protect your business against any losses associated with anyone who is crucial to the running of your operations. This cover includes the death of the individual, or if they are unable to work due to terminal or critical illness.
Usually, the cover is taken out for a specific time such as 10 years but this varies depending on how much cover you need. Key person coverage is unique to your business which is why it’s important to weigh up the impact of the key person, how their loss would affect your operations, revenues and profits, and how much it would cost to replace them using specialist recruitment agencies. These considerations determine how much cover a business requires and, at Moore Health & Protection, we can help you to come to an answer.
How much does key person cover cost?
Just like any other insurance, the cost of key person insurance depends on a few different factors including the type and level of cover needed as well as who is to be insured and the nature of your business. Other factors that can affect the insurance premium include the age of the key person, whether they have any pre-existing health conditions, and whether they smoke.
Protect your company today with Moore Health & Protection
Unlike life insurance or death in service, which are both designed for private individuals, key person insurance is designed for businesses and could provide much-needed money in the event that a key member of staff is unable to work. What’s more, if the key person insurance covers an employee who doesn’t hold shares, you may be able to deduct the premiums from any business expenses and tax.
If you have any questions about this insurance or want to put a plan in place to protect your business, don’t hesitate to get in touch. There’s no fee payable when you enquire and together we can help you to be better prepared for life’s unexpected events.
Moore Health & Protection Ltd is an appointed representative of The Right Mortgage Limited. The Right Mortgage Ltd is registered in England and Wales no. 08130498. Registered Address: 70 St. Johns Close, Knowle, Solihull, England,B93 0NH.