Key person insurance – what is it and why is it important?

If you have a family, you’re probably aware of life insurance and how it can help protect your loved ones financially should the worst happen. But do you have cover to protect your business? Yes, such a thing does exist – it’s known as key person insurance.

The importance of Key Person Insurance for small businesses

When a key person in a business dies it can have a devastating financial effect –key person insurance can help small businesses cope with the loss of crucial staff. According to Legal & General, 26% of small businesses in the UK would need to shut shop if they lost an owner or a senior member of staff due to death or serious illness. The survey also found that that 15% of small businesses that have already experienced those problems have already closed down.

This isn’t surprising. Often in small businesses, it’s a small number of key people that hold the majority of the knowledge, skills and expertise required to run the business. If one of those individuals were no longer around this could have catastrophic effects, such as a loss of customers or a lack of experience to keep the place running efficiently.

This is where key person cover could come in useful.

What is key person insurance?

Put simply, key person insurance (also known as key person protection or key man insurance) helps a business insure itself against the financial loss it would suffer if a key person in their business died or was diagnosed with a serious illness. The policy is owned and paid for by the business, so any pay-out is payable to the company.

Key person insurance may make sense in many circumstances:

• If the death of a vital member of staff (like a top salesperson or CEO) could quickly impact the company financially
• If the business’ reputation and financial viability are critically linked to the key employee’s name, knowledge or unique skills, and the loss of this person could end the business
• Your business has debt that would be difficult to repay if a key individual died or became critically ill
• If you require to have it in place to secure particular investments or loans (some banks may refuse a loan if this cover is not in place)

Key person insurance will help cover the costs of any debts due to to the loss of a key person who is named on the policy, help protect profits or allow the business to pay for a replacement member of staff.

If you’re a business owner and think your company could benefit from Key Person Insurance, get in touch for a chat today to see what the options are for your business.