Locking in key person insurance
In a fast pace and ever-changing world post covid, protection and ensuring individuals and businesses are covered should the worst happen, has taken more of a front seat in a lot of people’s minds.
Research from insurance company, Legal & General, found that 59% of businesses believe they would have to stop trading in less than a year after the death or critical illness of a key individual.
So how do you as a business protect against this risk and ensure continuity within the business? This is where Key Person Insurance comes into play.
What is Key Person Insurance?
Key Person Insurance provides cover to a business so that in the event of a death or diagnosis of a terminal or critical illness, an amount will be paid out to the business to help to cover any recruitment costs for a new individual and to cover any loss of profit in this period.
How does it work?
The policy is taken out by the company on the life of a key person/individual. A key person can be anyone who contributes significantly to the business, usually in a financial aspect. This could be anyone from a business owner to a salesperson or a technical expert.
The company pays the premium and receives the benefit in the event of a claim within the term of the policy. No benefit will be paid directly from the insurance company to the family of the individual.
With this sum of money, the company can then use these funds to cover recruitment costs (headhunting etc), cover loss of profits, payment to suppliers upfront, payment of debts/loans and many more scenarios.
If a business loan is taken out, many lenders will require a key person policy to protect the loan amount to provide evidence that the loan can be repaid in the event of the death or terminal/critical illness.
What are the benefits?
Losing a key person in your business could have a severe impact and by using this type of business insurance, you can bring peace of mind, from a business perspective, that in the event of a death or terminal/critical illness, the business can continue to trade with any short-term costs being covered from the policy.
It will safeguard not only the business, but the other employee’s future knowing the company will continue to trade and the business will recover after the loss of a key individual.
What should I be doing?
If you are a business owner or in the higher echelons of a business, it is vital that you review whether this insurance would be beneficial to the business. How would your business react if you lost a key individual? Have you got any loans that would be called in if a key person passed away or was terminally ill? Would customers choose to go elsewhere? These and many more are factors that you should be considering.
To speak further about whether key person insurance could be appropriate for your business please contact our Financial Planning team on +44 (0) 330 124 1399 or provide your details on our online enquiry form.
The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.
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