The Benefits of having Key Person Insurance
Successful businesses are a product of their people. From directors to salespeople, a business thrives or declines based on the quality of its staff. But what happens if you find your perfect employee and they are suddenly unable to work? Your entire business can be at risk. Stats show that 40% of businesses would fail in less than a year if a key person or owner was unable to work. That’s why it’s well worth considering taking out key man insurance, also referred to as key person insurance.
Key man insurance covers your business in the event that a highly valued employee (or a ‘key man’) is unable to work, whether due to critical or terminal illness, or even death. Think of it as business life insurance. A key person could be anyone within your team who you consider vital to the successful running of your business. It might be the CEO or it might be a key designer, marketing manager or salesperson whose skills you depend on.
What are the benefits of key person insurance?
Cover a drop in profits, sales or share prices
The benefits of key man insurance are that you can insure against the drop in sales and profit this may result in while your team member is out of action. You can also stabilise the value of your shares by protecting your business against perceived uncertainty.
Cover the costs of finding a replacement
It can take considerable time and money to recruit and train a suitable replacement when your key person is unable to work. The last thing you want is for your business to be floundering in the meantime.
Offset some stress
The stress that an absence places on the business and your other employees, both in terms of increased workload and emotional repercussions, can’t be underestimated. Having key person insurance in place ensures that, if the worst does happen, and you lose a vital member of your team, you can at least weather the storm and ensure your business transitions to its next phase as smoothly as possible – and with team morale intact.
And what are the costs?
Policies vary in price, depending on the number of employees you cover and which illness scenarios you opt to cover. While it can seem like an unnecessary outlay, one of the benefits of business life insurance is that it is a tax deductible expense. The costs of key man insurance can be spread over affordable monthly payments, but the pay out in the event that you lose your key person can be a considerable lump sum that keeps your business afloat during troublesome times.