Every business has an employee who is critical to its profitability, someone who is integral and critical to the business, someone who is firmly entrenched and important, it might be a top salesperson or a manager that is vital to the business. Ask yourself – “what would happen to your business if that employee were to pass away?" If that employee is indeed "key" that is, he or she creates significant revenue, revenue that would take a while to replace, then their loss would likely trigger an economic crisis in your small business!
Keyman insurance is one of the most overlooked insurances by firms - but also one of the most important. This article looks at the risks it can cover for directors, shareholders, partners and employees alike.
As a businessperson you might have public liability insurance and you insure your buildings, stock and vehicles. You may even have professional indemnity insurance and legal cost insurance. Is that all?
Key staff represent the heart of every business but no more so than the small, often family, business that have up to 4 employees. Prolonged absence through serious illness or even death can be terminal for some of these enterprises. The risks are the same for limited companies, partnerships and sole traders. In this context keyman insurance is a must.
Keyman insurance represents a group of insurance plans all designed to financially protect businesses from the effects of prolonged illness or even death of staff. The insurance can't replace people but it can provide cash to buy time and cover the costs of temporary staff, recruitment, loss of profits or provide a cash injection.
The insurance falls into four categories - insurance to help your business recover during the extended period when your key personnel are unable to work or to train or recruit a replacement, insurance to protect profits, insurance to protect shareholders or partnership interests, and insurance for anyone involved in guaranteeing business loans or banking facilities.
Who are Your Key People
- They are the ones who steer, create and drive your business
- The people without whom your business would lose sales and profits or without whom even the basic viability of your business would be shaken
- Look at the Directors, Partners, owners and beyond
- Consider the roles of senior managers in sales, technical development and operations - the roles will change in every business but the candidates are sure to jump out at you
- Insuring these people will provide the extra cash needed to take on temporary staff or recruit and train a replacement
The loss of a keyperson can have a major financial and operational impact on your business. Some of the ways in which your business may be affected are listed below:
- The business will have to survive without that person’s unique skills, business contacts, management experience or intimate knowledge of your business. This may result in a reduction in service standards and loss of confidence by both customers and suppliers
- Bank loans could be called in if the keyperson had given a personal guarantee
- There could be a withdrawal or reduction of credit facilities by banks or suppliers who are concerned about the future of your company due to the death or serious illness of the keyperson. Loans made by the keyperson will have to be repaid.
- Additional cost of recruiting a suitable replacement (if one can be found).
What is the solution?
Putting keyperson insurance in place.
It can help you overcome the financial repercussions of losing a valued member of staff.
The keyperson policy will pay out a lump sum benefit to the business on the death or serious illness of an insured keyperson.
The lump sum benefit will compensate the business for any loss of profit or can be used to repay loans or recruit a suitable replacement.
So, can your business afford to ignore keyman insurance? You'd be brave to say YES!
If you'd like to find out more contact Anne O'Doherty, Head of Life and Pensions, QWM on 021 4641400 or email aodoherty@qwm.ie
