Key Person Insurance

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Key Person Insurance

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Why should you read this guide?

Key Person Insurance is important for every business to consider. You should look at this as part of the overall protection of your business. If you have staff or partners in your business who play a key roll then you should get adequate cover for them to reduce the effect of their death or illness on the business.

Background

Most businesses will have insurance. They will cover buildings, plant and machinery, vehicles and even stock in some cases. However, there are not many that cover the most important part of the business - the people. Imagine a situation where your business has heavy reliance on one of the vans. If this van crashes then the insurance will pay out and you will probably have the go ahead to buy a new van the same day or hire one until the other van is fixed. What if your business partner was driving the van and ends up in hospital for a few months or dies? Do you have an easy way of replacing him either for a short period or in the longer term? Key person insurance is the cover that is designed to help you with this in your business.

Who should have cover?

This insurance is not just for big companies. In fact an argument could be made to say that big companies would find it easier for someone to cover the key person. You need to look at each part of your business and decide who plays a crucial role in it. These could include:

You and your fellow partners or directors
Any specialise machine operators
Your best sales person
Your financial controller
Any overseas workers
People who provide guarantees for the borrowing of the business
Basically anybody in the business whose loss would disrupt the business

What does cover provide?

Like most insurance policies the answer to this question is firstly peace of mind. Knowing that your business will survive if anything does happen to one of your key people gives you good grounding for the business. Specifically it can give you the following benefits:

Payment on the death of a key person
Income to cover the absence of a critically ill key person
Payment to provide the family of a key person with income
The funds required to replace a key person either temporarily or for the long term
Safeguard against a downturn in sales or profits

Where can you obtain cover?

Any company that provides business insurance will provide you with a quote for key person insurance. It is always worth shopping around to find the best deal and obtain more than one quote. If you have a trusted insurance broker that you use this should be your first port of call but it may also be worthwhile speaking toy our bank. Remember that the cheapest quote may not be the best one. Look at the benefits any policy can provide you and how quickly you are likely to get the money when it is required.

Summary

Key Person Insurance is like every other insurance policy - you feel like you are wasting your money paying for it until you actually need to make a claim. At the very least you should look at the cost of the policy, the benefits of having one and compare this against the potential cost to the business of not having one.

Further information

You will be able to obtain further information from any insurance broker - do remember that they will try and sell you insurance though. You can also speak to your bank manager who will be able to tell you the importance of the policy. Finally your accountant will be able to help you decide on the cost against benefit.