Keyman insurance is an important form of business protection that provides financial cover in the event a ‘key person’ in a business – like an owner or senior executive – dies.
These events are obviously tragic from a personal standpoint, but they can also cause immediate and devastating repercussions for a company and put its future at risk.
Keyman insurance can help to cover the costs associated with losing such an essential member of a business, from paying the costs of any outstanding loans, to paying recruitment fees, to covering the cost of training.
Regardless of the size of your business, it’s advisable to take out keyman insurance to ensure you’re covered in the worst case scenario.
In this quick guide, Rigby Financial outlines the main reasons you should invest in keyman insurance cover.
Table of Contents
1. Protect yourself financial against the loss of a key person
From a founding director, to leading sales person to skilled, experienced engineers, a key person is anyone who has a direct impact on the success of a business.
If you don’t have a key person policy and an employee or director dies, you could find your business in financial problems when it comes to covering the loss.
It could be the loss of revenue a top performing sales person would have generated, the loss of key client relationships and the recurring revenue that came with them, or the repayment of loans associated with an employee.
All these losses could be devastating and put a business in immediate danger.
2. Protect your business in the short-term
The immediate financial impact of losing a key member of staff can be serious in threatening the future of a business.
Whether it’s lost profits and revenue or increased costs, the short-term disruption to losing a key member of staff can be hard to navigate.
Key person cover will help you through these hard times.
For example, recruiting for skilled senior executives can be costly and often requires specialist head-hunting to find the right candidate. With keyman insurance protection in place you’ll have the financial cover to face these costs.
3. Cover any recruitment/ training costs
While you might not want to think about replacing a key member of staff, it’s something that will need to happen eventually if your business is going to survive for the long-term.
But replacing senior executives, or highly skilled engineers, or top sales people can be an expensive process.
Depending on your business’ industry, or how niche a skill you’re trying to replace, you might have to use a specialist recruiter, or even a headhunter to find the right person, which will drive your costs up even more.
If you have keyman insurance cover in place, you won’t have to worry about these costs because you can cover them with the payout you’ll get from your insurance.
This payout can also be used for internal training costs if you want to bring an existing member of staff into a more senior position rather than hiring from outside the business.
4. Protect your business’ future
Losing a key employee could create a huge amount of uncertainty about your business’ future, especially from a financial perspective if that person had a direct impact on the success of your business.
In the event of the death of a key person, there are a number of financial uncertainties that can appear, whether it’s the loss of revenue, lost future business, or the loss of a key skill that could impact your product development or processes.
5. Keep your business protected by investing in keyman insurance
While there is no helping the personal loss that comes from the death of a key employee, you still need to protect yourself against any financial repercussions that could threaten your business and put its (and the financial futures of your remaining employees) at risk.
By investing in keyman insurance cover you can help safeguard your business financially from the short-term financial impact of losing a key employee to ensure the long-term future of your company remains viable.
The alternative is a scenario in which your business suddenly faces the prospect of reduced revenues and profits at the same time as facing increased costs – and that could cause a serious risk to your company.
Protect the future of the business
Going through something so difficult as a business as the loss of a key employee could have a huge effect on your staff – particularly the uncertainty about the future.
The result of this is different for every business, so you’ll want to do what you can to make sure the future of the business is protected.
With keyman insurance taking care of the money side of things, employees can at least be more reassured that the business’ financial future is secure and their own jobs aren’t immediately at risk.
Within the keyman agreement you can add a ‘buy and sell’ section to transfer the ownership of the business to someone else in the event of a death or critical illness.
Cover recruitment costs
You might not want to think about replacing someone under such circumstances, especially not immediately after, but the reality is you have to continue doing business.
This involves finding someone new to be a part of that.
Keyman insurance will cover the cost of a new employee, as well as the process of advertising and interviewing candidates.
Finding the right cover for your business
Keyman insurance can often be looked over.
It’s needed in case of the death or critical illness/disability of a key person within the business, which isn’t easy to think about.
With Rigby Financial, you’ll get a dedicated expert to guide you through it all and find the best cover for you.
Get in touch now for more information.
