Successful businesses are built on successful people. It’s easy to forget things like insurance when you are busy running your company, chasing the next deal or contract. Business protection is something many companies don’t even know about. That’s until something happens to their key person.
We have often had calls from companies who have already had something go wrong within their company. Maybe they have lost a key person due to death or a critical illness. It can be a very sad situation indeed, with many companies going bankrupt or into liquidation when they lose a key man or woman. According to Companies House there is a business protection gap of 1.1 trillion from the 3 million registered companies in the UK. That’s a lot of under insured companies. Businesses will always think about insuring their company photocopier and IT equipment but forget to insure what really is important.
What Is Key Person Insurance?
Key Person Insurance or Key Man Insurance is a life insurance product that can be taken out on a person within the business. The company will own the policy and will be the beneficiary of any claim. The key person can be insured for death only, but many companies will add on critical illness as well. This means that if that key person was to die or become critically ill the company would receive a lump sum of money to compensate their loss. This money can be used for any reason the company feel necessary.
Who are My Key People?
The key person in the company could be one or a number of different people. Most small companies will have one or maybe two key people. But you need to look at the various workers and decide which ones the company cannot afford to lose. It could be an IT person, the marketing expert or just the main man with all the right business contacts. Often companies will take out key person cover when an investment is made or a loan is taken out. Investors may ask for the MD to be insured or just the directors.
How Much Is It?
Insurance of this kind is priced very much the same as normal life insurance or critical illness. Prices will depend on a number of things including age, amount of cover and smoker status. You will also need to decide on a term for the cover. The longer the term the more the premiums will be. We normally recommend at least a 5 year term but many companies will choose longer depending on their needs. The longer the term the more expensive it is but it’s good to lock in the premium for a long term if you think the key person will be employed for a long time. When comparing quotes it’s important to speak to whole of market brokers. They will be able to compare the widest range of underwriters. You will often find brokers will also be able to discount the cover, so make sure to ask.
In Summary
It’s better to be safe than sorry and without too much expense you can make sure your company and the key people are adequately covered. Hopefully you will never need this kind of insurance, but if you do it will possibly be the best business decision you ever made.
