By Peter Cook
If you don’t currently have any key man insurance in place, it’s certainly something you should look into. Whilst most companies are trying to save costs in many areas, insurance is one aspect of business that should never be overlooked. Key man insurance is one of those policies that is often ignored and this could have dire consequences for your business.
Prepare for the Unexpected
Key man insurance protects your business in the event of the death or disability of one of your key employees. When it comes to identifying key personnel it can be tricky, but usually it’s the business owners and directors who are the most important to operations and the success of the company.
Your workforce should also be analysed carefully as some members of staff may be more important to your business than you first thought. Think about those who have been with the company for a great deal of time, who have specialist knowledge or knowledge of products, services or operations that are unique to your company. If you think your company would struggle or falter without them then they are probably a good candidate for key man insurance cover.
Who Are the Key People?
Before you can set up your key man insurance policy, you will need to identify your key employees. This might include:
Those who drive the business – think about key employees you depend on
Directors, partners and shareholders
Managers integral to the business
Types of Insurance to Consider
Key man insurance to provide an income whilst a key person is on short-term incapacity
Relevant Life Policy – similar to a death in service policy for employees
Shareholder Protection Policy – will provide funds so that all remaining directors, partners and shareholders can buy out the shares from the original owner of the company
Insurance to cover business loans or investments into the business
Unfortunately, key man insurance is often overlooked and many don’t realise its importance until it’s too late. Whilst key man insurance can’t replace employees or a business owner, it can give you the adequate coverage to arrange temporary cover, recruitment, and training that will help you to avoid damaging your business or your profits.
It takes a lot of hard work to form and run a successful business and this type of insurance will give you peace of mind that you are covered in the event of losing key members of staff. A loss of this nature can deal a devastating blow and cause major disruption to the running of your company. Key man insurance premiums are also tax deductible as they are seen as business expenses.
Protect Profitability and Stability
Key man insurance is very much like a mortgage protection policy or term life insurance. Usually with these policies, it is a spouse included as the beneficiary, but in the case of key man insurance, it is the company. Many companies take policies out to protect them from the financial repercussions of losing a key employee due to ill health, critical illness or death. However, many small to medium companies tend to shy away from this type of insurance or are unaware of its existence. When you think about it, key man insurance should be just as important as insuring your business equipment and assets. Just as you would be lost or financially crippled without those items, the loss of a key employee could be just as, or even more damaging.
People worry about the high cost of insurance, though key man premiums are often than you might think and policies are customised to suit to your business. You can choose the exact level of cover you need, get professional advice, and total peace of mind that your business is adequately covered. If you have identified several key members of staff within your company, that won’t be a problem. Many policies are designed to be flexible allowing you to include as many staff as you wish. Just let you key man insurance company know so they can create the best policy to suit your needs.
The profitability and stability of your business could be at stake if you don’t have key man insurance in place. More and more companies are starting to recognise the benefits of taking out a policy and insuring themselves against short-term incapacity or total loss of their key employees.
About The Author
Peter Cook is an Independent Financial Advisor who works at Watkin Davies Insurance Brokers in Cardiff, South Wales. They offer information and news regarding key man insurance cover on their website http://www.keyman-insurance.org