Key Person insurance is an important part of your Business Protection cover.
Businesses are facing challenging times.
With a perfect storm of increased costs, inflationary pressures, spiralling energy bills and the impact of the recent rise in NI contributions all taking their toll.
Add to that the threat caused by a skills shortage which means finding the right people to fill roles is also tough.
In the current climate could your business cope financially if a key employee or a business owner were to die or suffer a serious illness?
If the answer is no, then you should be looking at mitigating that risk with Key Person protection (also known as Key Man insurance), which is surprisingly easy to do.
Let’s face it, no amount of money will fully replace a valuable employee or a company figurehead. But a cash injection into the business at that time will give your business the necessary breathing space to regroup, re focus and then continue.
You’re not only protecting your business but also the livelihoods of all your employees who depend on its survival.
If you have had to take out additional financing to weather the storm, we can help you protect that too.
Why do we need Key Person insurance?
We have a question for you…
What would happen to your business if a key staff member suffered a significant injury or illness that limited or prevented them from working?
During these challenging times you may have considered what you would do in this instance. If one of your key employees were to die or become terminally or critically ill.
Whilst it’s a bit of a cliché, many businesses will choose to protect their office premises, equipment, machinery, and cars via insurance. But not their most important asset – their people.
When you lose someone key to your business you not only have to deal with the emotional impact that this will have on your staff. But also the financial implications.
Time will be needed for you to get back on your feet, however, you are likely to see a change in your turnover. Which could have an impact on the business’ profits.
It is even possible that there might be a shift in confidence others have in the business. All at a time when the bank may be less willing to offer loans to see you through this period.
Key Person insurance can protect your business from the financial impact of losing a key member of staff. Put simply, you can insure the life of a key person in the same way you would arrange insurance for yourself. But the company owns the policy, pays the premiums, and would receive the payment from the insurer.
Who is a Key Person?
This can vary and will depend on the circumstances of your business.
It could be anyone from your business owner; whose contacts and relationships are unique, to an IT professional, shareholder, or a technical expert with years of experience and a vast understanding of the way your business works.
A key person is essentially someone whose death or illness would have a significant impact on the financial position of your business, and their skills and knowledge would be difficult and expensive to replace.
How does it work?
Key Person Insurance can pay a regular income if the person is unable to work because of an illness or injury. Or more commonly a lump sum if they die or are diagnosed with a terminal or critical illness.
Your business can use the funds to help replace profits over the short term. Pay off a loan including directors loans linked to the business. Or pay recruitment costs and a possible golden hello for a replacement.
Basically, anything that you need to minimise the impact that the loss of a key person would have on your business.
How much cover would you need?
If you need to provide protection for a loan or investment this is straightforward, as the cover can reflect the loan amount. In fact, many investors and lenders will insist on Key Person insurance as a condition of their offer.
We can arrange a policy where the lump sum reduces in line with the payment and often the interest rate can be tracked too.
If, however, you need to calculate how much the key person is worth to the business this can be a little trickier.
Broadstone will be happy to guide you through this process to ensure you take out cover that accurately reflects the potential implications to your business.
What policy benefits should we cover?
Whilst it’s more common to provide a lump sum payable on death of a key person, the chance of them suffering from a critical illness during the policy term is significantly higher.
It’s a well-known statistic that one in two of us will get cancer during our lives and it follows that the vast majority of claims payable are due to cancer, followed by heart attack and stroke.
The British Heart Foundation found that in the UK as many as 100,000 hospital admissions each year are due to heart attacks: that’s 280 admissions each day or 1 every 5 minutes.
The loss of a key person through critical illness would be devastating for your business and we would recommend that some element of Critical Illness Benefit is included within the policy.
How much will it cost?
You decide how much financial protection the business needs and we can provide you with some indicative costs. The final premium will depend on:
- How much cover you need
- For how long
- The type of benefit
- Age and health of the key person
- Smoker status
- Any hobbies or pastimes that are considered to have a risky element– g. Cave Diving, Motorcycle racing
Broadstone takes a whole of market approach to ensure that we find an insurer that meets your needs. Provides a solid level of protection, at an appropriate price and with an excellent record for settling claims. We will also ensure that you fully understand the tax treatment and implications of any policy you put in place.
Our team of experts has extensive knowledge of Key Person insurance, as well as experience in the consultancy process to provide the right insurance, covering the right people.
Broadstone will guide you through the full process from identifying who is key to your business. And selecting an appropriate provider, to navigating the underwriting process. We can advise on the optimal level of cover for your business and explore the market to find the best available rates.
Even if you have a policy in place already, there is nothing stopping you from reviewing this, checking it is still fit for purpose and making sure that you are getting the best rates possible.
Let us take care of protecting your company against the unexpected, so you can focus on driving your business forward.
After all, dealing with the most important but likely “time poor” people in your business is going to need the utmost care and attention.