Business

Protecting your people is key

Employees are an asset perhaps worth considering covering through insurance
Employees are an asset perhaps worth considering covering through insurance Employees are an asset perhaps worth considering covering through insurance

AS a business owner it is imperative all of your assets are properly insured. This protection extends beyond the bricks and mortar of your property and applies to your other key assets – your people.

It is important to consider how your business would operate if one of your key personnel or team members were to suddenly take ill or die. Would your business be able to operate as normal and deliver the same targets, deadlines, objectives and profit?

Have you considered how you would cover for the financial loss of the employee or pay for a temporary replacement during his or her recovery? Given all of these significant considerations, perhaps it is time to consider Key Person Insurance.

This cover is designed to provide financial stability in a time of stress and anxiety due to the sudden loss of an important employee. Many businesses benefit from key person insurance, including those with:

• Employees who would be extremely difficult, time-consuming or expensive to replace (ex: central decision makers, chief executives and directors, vital sales managers or employees whose ideas have critical commercial impact);

• Highly skilled employees with unique training;

• Employees with exclusive ties to key clients;

• Narrow profit margins where a staff loss would mean financial trouble;

• A need to protect their revenue stream from loss (for example, hospitals protecting against the loss of a high-earning, respected surgeon);

• Concerns that a high revenue-producing client (ex: actor, writer or other entertainer) became disabled or died and was unable to perform;

In the event a vital employee becomes disabled or dies, this type of insurance provides the company with income to make up for financial loss or use for temporary replacement costs.

Some key areas of consideration before purchasing Key Person Insurance include:

• Estimate the value of your key employees. Think about the projects that would be lost without them, the amount of sales generated by them and the costs associated with replacing them.

• Think about the amount of protection needed. There are several methods to calculate this, including using a multiple of salary or profits, payroll proportion, and the actual impact method.

• Determine whether this cover is necessary and whether it is already covered under a comprehensive policy.

• Create a business continuity plan that outlines how your business will function if you lose key employees. In addition to proper cover, having such a plan is vital.

Taking measures at the outset to protect your key personnel will protect your business in the long-term and safeguard against the unfortunate circumstances which we would all prefer not to have to face.

John Kielty is commercial insurance director at Autoline Insurance Group (www.autoline.co.uk).