What would happen if your business lost a key person?

As an SME, everyone within your business will have an important role to carry out. Have you considered, however, what would happen to your business if one of your key members of staff suddenly died or became critically ill?

The effects on your business could be devastating if you lost someone whose specialist skills, experience, leadership or knowledge are key to the financial success of your organisation.

That is why you may wish to find out more about Key Man insurance.

What is Key Man insurance?

This is a specialist life insurance policy, with optional critical illness cover, that pays out a lump sum in the event of the death or critical illness of a (named) key person in the business.

While, typically, Key Man insurance is aimed at insuring directors or the chairman of a business, it can cover anyone whose loss would make a financial impact in the company.

The lump sum can be used for whatever purpose necessary, such as:

  • recruitment and training a replacement:
  • repaying a loan made by the key person into the business;
  • meeting business debts;
  • keeping the business running at a time of transition; etc.

Who needs it?

Key Man insurance is suitable for any SME and can provide peace of mind that, should something happen to a key person, the business will be able to keep on running.

Recent research* found that 39% of business owners said that they expected to be out of business within 18 months of the death or critical illness of a key person – thereby validating just how important this insurance is.

This cover can be complemented with Key Man Income Protection insurance, which pays out a monthly income if a named key individual becomes unable to carry out their role due to illness or injury during the term of the cover.

The facts

The same research who revealed that 95% of businesses had at least one key individual – yet 58% of those businesses had no formal agreement to establish what would happen in the event of the premature death or serious illness of that key person.

How much cover?

There is a limit in terms of how much a key person can be insured for, as there has to be an insurable interest (which means that they cannot be covered for more than they are worth to the business). The limit is usually 2 times their contribution to gross profit or up to 10 times gross salary.

Seeking advice from a specialist provider of this business protection will help you protect the longevity of your company and give you the peace of mind that it will carry on, even with the loss of a key person.

*Legal & General

Leave a Reply