One of the most common questions business owners ask is: “What is key person insurance and why should I have it?”, so if you have ever thought: “Key person insurance – what is it & why should businesses have it?”, read on to learn everything you need to know.
What is Key Person Insurance?
Key person or key man insurance is a type of life insurance policy designed to protect your company against the loss of staff members whose contribution to your business’ smooth operation, profitability and growth is invaluable.
Such staff members – your key personnel – may, for example, have exceptional inter-personal, leadership, technical and/or other specialist skills; impressive unique talents or unrivalled knowledge, know-how or experience in how your business operates or specific aspects thereof and could include one or several of your company’s:
- Owners, partners and/or shareholders
- Designers, managers or directors
- Sales, marketing or technical experts
- Other employees with unique experience, talents or skills
Some of these key individuals may also be of vital importance to your company because they have business liabilities (asset finance, commercial mortgages, overdraft facilities, development loans, etc.) secured against them (i.e. they are guarantors for your company’s outstanding liabilities).
Should a named (insured) staff member die or develop a critical illness (most policies come with the option to add cover for critical illness), a key person policy will pay out a lump sum that can then be used by the company to mitigate the effects their death/illness would otherwise have on the business. Learn more.
Why Should Businesses Have Key Man Insurance?
Losing such an important individual’s experience, expertise, skill, etc. could result in a company experiencing virtually immediate loss of:
- Productivity and subsequently loss of profitability
- Crucial business contacts/contracts that were associated with/maintained specifically by this staff member
- Suppliers’ and /or customers’ goodwill, as well as their trust/confidence in the business
Then, of course, the company will face having to find and train a temporary or permanent replacement, which can be expensive in terms of both time and financial outlay.
In the event of the deceased individual also having been a guarantor, the business may also be forced to immediately repay any outstanding business loans, etc. secured against them.
This could, of course, put significant financial pressure onto a business at what is undoubtedly already a very difficult and uncertain point in time, especially if access to adequate funds for such repayments is not readily available.
Bearing these potential ramifications in mind, it becomes clear that protecting your business against such a loss is crucial to its future financial security and growth.
Key Person Insurance -What Is It & Why Should Businesses Have It?
In a nutshell, key person life (and, if selected, critical illness) insurance protects companies from the ramifications of losing a crucially important staff member by paying out a lump sum in the event of an insured employee’s death or, if such cover was included, critical illness.
Allowing companies to mitigate the financial impact of such a loss, it is therefore something every business should have to protect its financial future.
Spectrum FA can help you get the perfect key person policy to protect your business, its profits and its future financial security and potential for growth. Get in touch with us today to learn more and book a free, no-obligation review.