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What you need to know
The ultimate protection for your business: What you need to know about key person insurance
The loss of a key staff member can be detrimental to a business and its operations. The remaining staff are left to pick up the pieces, and long-term business plans are affected. Many small and medium-sized businesses haven’t yet taken steps to protect themselves, should something happen to a key person within their organisation. It’s an oversight that could mean the business is unable to recover should something happen.
Now there’s no denying that as a business owner you and your key people have plenty of responsibilities to tend to on a daily basis. How would your business fare if yourself or another key worker were to fall seriously ill?
Less than 1 in 5 SMEs cover key people
Similar to taking out protection products to ensure your home, possessions or car, key person cover protects your business should something happen to those who are fundamental to your firm’s operations.
Key person insurance is usually similar to a life insurance policy, it will pay out a lump sum if the named key person passes away. However, additional protection can also be taken out to cover illness. The money paid out can provide a cash injection when the business needs it, allowing the firm to continue operations and help with the recruitment and training of new staff where needed. Key person insurance can provide businesses with stability if things outside of their control mean that key personnel are no longer able to work due to illness or death. The policy itself is owned and paid for by the business.
Statistics from Legal and General found that just 18% of SMEs have any insurance to cover key personnel. While 63% of businesses said the death of an owner would have the biggest impact on their business, 40% have no continuity plan in place at all. They also found that 99% of businesses agreed they have at least one key person, whilst 38% said they had three or more.
Who are the key people in the business?
If you’re a business owner, you’re likely to fall into that category yourself, particularly in the early years. Ask yourself how successfully your business would be able to operate without you. If there would be challenges, it’s worth considering key person protection.
Other employees may also be key people to your firm. Ask yourself if the loss of an employee would affect profits and mean your business would face financial hardships. While this includes direct sales, you should also consider other areas, for example, the value of skills, innovation, networks, and an understanding of how the business operates that an employee brings.
Thinking about key person insurance can be challenging. But it can give you and the business vital breathing space to make the right decisions, rather than be rushed into them.
The loss of a key person in an SME can have a huge impact. It can mean the rest of the staff face increased workloads, the loss of important skills and knowledge, lost profits and, in some cases, termination of the business.
Choosing the right key person policy for you
If you’ve decided key person insurance can provide security for your business, it’s important that you take out a policy that suits your needs. There are three questions you should consider first:
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Who should your key person insurance cover?
What circumstances should be covered?
What level of cover do you need?
With these answers, you’re in a better position to review and compare different policies and understand when they’ll provide you with protection.
Another important factor to consider is the premiums you’d pay for different policies. These can vary significantly between different providers, but other factors will influence how much a policy will cost too. This will include the level of cover you want, as well as the health and lifestyle of the key person being covered. We work with a team of specialists who can help you find a competitive product that gives you the peace of mind you need.