Key Man Insurance: reducing risk, assuring continuity
An overview of key man insurance
Key man insurance, or to be more “Politically Correct”, key person insurance, ensures that your business has the means to recruit, replace and re-train pivotal staff in the event of their untimely demise, disability or illness. In many instances, the policy can also be transferred to the employee as a parting gift upon their retirement to bolster any existing life term policies they personally hold.
We’d like to take a few minutes to explain who needs keyman insurance, what the benefits are for the employer and provide an overview of what’s covered in this key risk area for business.
Who needs coverage for key personnel?
Whether you trade as a corporate enterprise or a family-run “Small-Medium Business”, you will have key personnel influential over the entire operation or specific departments.
The sudden loss of members of staff due to untimely death is a hard enough pill to swallow from a human and emotional perspective. There are far greater implications for a business as a whole if the employee who passes away, or is off due to illness has generated and/or is responsible for the profitability of the company.
The loss of a field sales person, CEO, head of payroll or even the company owner may have dire consequences if the capital isn’t available to find and attract a suitable replacement and train them in a short space of time.
If you can identify with that threat, you may want to prioritize keyman insurance now for those who spring immediately to mind.
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What are the risks if I don’t take out key man insurance?
At the heart of most businesses is an entrepreneur, a handful of industry experts who combine their strengths to form an organisation and then staff they’ve hand-picked to bring their vision to life.
In many instances, the loss of any one of those individuals can be hugely detrimental to the operation, financial stability or reputation of the whole business.
The details of what’s at risk for your company without insurance for key personnel varies greatly, depending upon the nature of your organisation, its size, the sector it operates in and many other industry-specific factors impossible to generalize, here.
Based upon our experience, we can however provide an at-a-glance list of benefits our clients have intimated have brought them peace of mind upon taking out key man insurance policies through us.
The Top Reasons for insuring against the loss of key personnel.
Should a key member of staff die or suffer from a long-term disability effectively ending their tenure, having key person insurance in place as part of your risk management program provides guarantees to all stakeholders as it:
- provides you with the capital to advertise, interview, employ and train a replacement
- assures staff that there will be a similar amount of continuity
- assures creditors that the business will continue and that their support of your business will be unaffected
- maintains your presence in the marketplace, giving customers confidence that your service will continue maintains integrity, helping to settle buy-sell agreements when any heirs claim financial stakes in the company the key member held
- premiums are deductible for the business, and are treated as an operating expense
The beneficiary of all monies paid is the employer, as it is they who both pay the premiums and also will have to recruit and train replacement staff.
As the cost is negligible in comparison with the assumed value the key person adds to the company, for those covered by the policy who retire, the employer can choose to turn the policy over to them privately, should they wish to continue paying the premiums permanently and owning the coverage personally.
How much should I insure key personnel for?
Again, the actual premium and amount payable upon the death of key personnel is dictated by factors native to your industry, size of company and ease at which members of staff can realistically be replaced.
It’s worth bearing in mind the costs one may immediately incur, such as hiring temporary staff until permanent replacements can be found, advertising for a replacement and even the long term cost of salary, should the market reflect a higher rate than that which your key member of staff had commanded, should all be worth insuring against.
As you can perhaps gather, there are many variables that will shape the best key man insurance policy for your company.
In order to arrange a competitive quote tailored to your company’s continued financial and brand assurance, please Contact us for a customized Key Man Insurance quote, visit our contact page and choose your preferred method to get in touch. We’d love to play a part in your organisation’s longevity.