What would happen to your business if you or one of your business partners was to fall seriously ill, or worse? Would you be prepared? In this article, George Square Financial Management explains why you should consider taking out a key person insurance policy to help protect the future of your business against the unexpected.
What is key person insurance?
Key person insurance, also known as key man insurance or business life insurance, is essentially a life insurance policy that a company purchases on the life of a key person; the company acts as the beneficiary of the policy and pays the premiums. If a claim is made inside the term of the policy, the company will then get either a lump sum payment or a regular monthly sum, as set out in the terms of the insurance policy agreement.
It is designed to protect businesses when someone who is key to the operation of the company passes away or becomes unable to work due to ill health. Typically, a key person will be a business owner or director; however, it can also include any employee with specialist skills that are crucial to business operations.
Why take out a policy?
Whether it be a strong leadership figure or somebody with highly technical skills that cannot be easily replaced, losing a crucial person within a team can cause real uncertainty for a company. As such, the main benefit of key person insurance is that it provides peace of mind for businesses.
It means that, if anything unexpected were to happen, the financial ramifications will be significantly lessened, helping your business to continue to operate through what is no doubt a difficult time.
As well as providing peace of mind, key person insurance may also protect against several other risks. These include:
- Loss of profits during business disruption
- Protecting debts
- Paying back a business overdraft or loan
- Covering salaries
- Recruitment costs
- Paying penalties for non-delivery or late delivery on goods and services
- Paying an account upfront
- Sole traders who are personally liable for business debt
Future-proofing your business
Interestingly, it is often smaller businesses that overlook key person insurance, despite many having a greater need for it. Owners and directors of SMEs tend to be far more involved within their companies; this means their loss would likely be felt more greatly within the team.
Whether you’re a fully-fledged business or a budding start-up, if you own a business you should consider key person cover. At George Square, our expert team can help business owners find the most suitable protection policy for your requirements.