Key Person Cover

KEY PERSON INSURANCE

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How Does Key Person Insurance Work?

Key person insurance is also another important business protection insurance service and can also be known as key employees insurance, key man insurance or key person protection and forms a major part of your business protection insurance. It is designed to protect businesses against financial loss when someone who is essential to the company’s operation dies or becomes unable to work due to ill health.

The insurance will pay out a cash sum on the death of the named key person, as the loss of this key person would have a financial impact on the company. Some providers may offer this on a critical illness basis too.

The business owners take out key person insurance on the key employee. The business pays for the premiums and is the beneficiary of the insurance in the event of a claim being made. If the insured employee dies within the term (or is diagnosed with a critical illness if this is also insured), the company will receive the payout.

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Why Do I Need Key Person Insurance?

Your business success requires your stakeholders’ confidence, from customers to suppliers, bank managers, and employees, so losing a key person will often significantly impact that level of confidence. The benefit of receiving an injection of cash from key person cover into your business can help it to survive short term giving owners time to take steps to maintain confidence from your clients in the longer term.

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Who Is A Key Person?

So who are the key people in your business? This decision is down to you as a business, and only you can decide if a person is key to the running or performance of your business. It could be a person who brings large revenue streams into your business, is integral to the profile of your business, or is a key decision-maker behind the scenes. If this person’s absence death or critical illness affects your business needs and operation, they can be covered by key person insurance.

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Small business owners are far more likely to have one or two significantly important people who the business relies on to succeed. Key man insurance is often overlooked by small businesses who tend to need it most, as loss of a key person would significantly disrupt the business proceeds.

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For example, small businesses are more likely to have an involved founder, without whom ideas and crucial leadership would be lost. The loss of such a person could damage the ethos of a young business that may not have the resilience to sustain the blow, without a financial boost of this form of business protection insurance, to help cushion the way to safe, profitable ground.

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Key man insurance provides assistance to get a business through a period of uncertainty in the aftermath of unexpectedly losing a key member of staff. It may only be money, but that money could ensure your business can continue to operate following the loss of an important member of the team, which would include one of the business owners.

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Key people inside a business might include:

The founder:  you, or the person who devised the business and got things off the ground in the first place.

Office manager: crucial in running the day-to-day operations

Technology guru: if you rely on a website to drive sales to your business, without your developer your business could lose its main route to profitable business opportunities

Top salesperson: if there’s one person the business relies on to bring the business through the door and make it stick, this person is key to the profits of the business