1.5m SME’s would be at risk of immediate closure should a ‘key person’ in their business become unable to work due to illness or death.
A further 26% said they would cease trading within a year. Yet 79% of businesses do not have key person cover in place. These shocking statistics were highlighted in research undertaken by Legal & General on the business protection market. 15% of those businesses surveyed had experienced a ‘key person’ becoming ill or dying which impacted upon their business to such a degree they had to close.
Defining a Key Person
So, how is a ‘key person’ defined? If you have one or two people whose illness or death would directly cause your business to fall into financial difficulties, they are key people. It may be the business founder, the person who sets the business strategy, or a top salesman responsible for bringing in profitable business. It might even be your technology expert who knows things no-one else in the company understands.
Legal & General’s research found that losing a ‘key’ person was ranked as the number one concern and of those who had already suffered from such an event, 30% said it had impacted their profits and 19% said it had lost them the confidence of their customers.
Yet, the majority of businesses polled had either not considered or did not understand the importance of business protection and 79% did not have any cover in place for such an occurrence. While many companies wouldn’t think twice about insuring computer systems or buildings – insuring their people does not come up on their radar.
Smaller business are more vulnerable
While a larger business is more likely to build succession plans, smaller businesses are more vulnerable. A report undertaken by Zurich based SwissRE said: “Protecting those that make it (your business) happen should be a fundamental part of a business plan, be it staff, owners or shareholders.”
The solution is simple
Key Person cover is designed to protect a business that may be reliant on one, two or several key employees. With sufficient protection on key staff, a company will have the money to fund sick pay and recruit new staff and have funds available to protect against any wider impact the loss of an employee may have on the business.
As we’ve seen, the death of a key person, particularly in a small company, can cause catastrophic consequences for the business. Key Person insurance is designed to help the company survive the loss of anyone who is key to making the business work. The proceeds of a key person insurance policy can be used to cover expenses incurred by the loss of the key employee until the business can find a suitable replacement candidate.
In the absolute worst case scenario, the cash can be used to pay off debts, distribute funds to investors and close the company down. In some circumstances, although it is brutal, key person insurance could protect a small company against bankruptcy.
We’ve put together a free Business Continuity Plan toolkit which provides all the information your business needs to ensure you and your staff are prepared for the unexpected. No matter how tough it gets, your busines will be protected.
The Finance Roome provides clients with a variety of business protection products to help you protect your business and your people.
If you would like to speak to us, call the business protection team at our Cheltenham office today on 01242 226353 or email us: firstname.lastname@example.org to request a call back.
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