Maintaining ‘business as usual’ in the face of something unusual.
What is key person cover?
Key person insurance is a monthly or lump sum payment designed to reduce the impact on your business if a key person is no longer able to work.
We all know that people – especially key, pivotal people – are a business’s greatest asset. However, often we insure our building, our equipment, or our other assets like stock, and we overlook our human resources. All of your staff are important, but there may be a few who are critical to your daily operations, and without whom your business would struggle to cope; these are your key people. Effectively life insurance that a business takes out for their certain people – whether the owner, CEO, or a significant employee or two – key person cover provides peace of mind and financial assistance to help a business through a trying time.
Do I need key person cover if I’m the business owner?
This is entirely up to you. If you are the owner of the business, it’s likely that you have your own personal life insurance policy also. However, this is often for taking care of your personal debts and your loved ones. Key person cover will get paid out to the business itself, so that it can do what it takes to survive in your absence.
Who qualifies as a key person?
A key person doesn’t have to be the owner or CEO of a business. It could be:
- A specialist – whether that’s an engineer, designer or similar – whose skills and knowledge are vital to your business success
- A salesperson who builds key relationships and manages contacts that are vital to the survival or growth of the business
- A founder who provides direction and momentum, or is an integral part of the business’s reputation
Can I get key person cover if I’m self-employed?
Many insurers offer newly self-employed or new to business key person cover for the first three years that you are in business/self-employed. This may have a reduced benefit and a shortened payment period, but your advisor can help you understand what is available to you.
What would happen if I didn’t have key person cover?
Only you can truly answer that question for your business, but the range of possible impacts span from a minimal disruption that you can manage by drawing on your reserves and the revenue already coming in, to a significant upheaval that leads to major cash flow issues, structural changes, or even the wind up of your business. Not only are revenues affected when a key person is unable to work but you may also have additional expenses in staff, training etc., and relationships and contracts can also come into question. Key person cover eases these burdens.