Key person insurance - how it will safeguard your business in adversity
EVERY business has at least one key person in place that can be credited as being a major component of the company's success.
The inability for there to be business as usual after the loss of a central member of staff can have a catastrophic ripple effect on business operations.
That being the case, logic would dictate that employers should take the precautions necessary to safeguard every aspect of their business in the event that they or another central member of staff are unable to carry out their job role.
Key Person insurance is life insurance obtained by a business entity on the life of a key individual, which is designed to offset a loss in earnings and enables the business to meet ongoing expenses should the worst-case scenario occur.
Essentially, it works to protect companies against the financial losses caused by the death or long-term incapacity of a key employee.
Attention should not only be paid to individuals in seniority roles. It is vital for businesses to take into consideration all mission-critical staff from every department in order to adequately evaluate the level of cover which may be required.
One of the world's largest catering firms, Compass Group, witnessed the untimely loss of former chief executive Richard Cousins in a tragic air crash earlier this year.
Despite Cousins' successor Dominic Blakemore taking over operations almost immediately, this unforeseen event has ultimately had a negative impact on the company's earnings and share prices.
There are various insurance packages available to protect a business in the event that a loss such as this was to occur.
Companies have the ability to opt for the cover which most appropriately meets the requirements of their business. Options include life cover, critical illness cover, or both, along with policies that pay out a regular income in the event of employee illness.
Key Man insurance is an investment which cannot and should not be overlooked. Employees are fundamental to the existence of any business and employers should always ask how stable the business would be should they, or another key individual, be absent from the organisation without warning.
As there is a high risk of financial difficulty involved with the loss of a key employee, it is not uncommon for investors, or institutions which provide financial support, to require the businesses with which they become involved to possess this type of insurance.
Seeking professional guidance will help ensure the continued existence of the company and will instil confidence within employees so that if something bad were to happen, the appropriate measures are in place to protect the company, and the job security of its employees.
:: James Trimble is senior financial consultant at Willis Wealth Management