Does your business depend on you? Don't put your business at risk!

Most business owners have probably taken insurance for their important possessions – such as buildings, infrastructure or other assets. But as a small business owner, have you insured the most important asset of them all – the people who are key to your business? With a wide variety of policies on offer, it is important to pause and consider what is important for you. Let us take a look at Key Person Insurance and how it can help you manage your risk while protecting your business.

What is Key Person Insurance?

Simply put, a Key Person Insurance policy covers the “key” persons in a business. For a small business, the key persons can include the founder, the owner (both single owners and partners) as well as others essential to the functioning of the company. So for example, if your business has a separate Manager for the Sales or HR departments, they could be key persons too. Your business can take insurance for all employees you consider to be important, with the essential idea being that key persons have a particular skill set or expertise and therefore are not easily replaceable. The key persons in your business are also responsible for developing long lasting customer relationships, which are critical for your company’s growth.

Key Person Insurance covers not only the death of a “key” person but also illnesses and temporary or permanent disability. Basically, if the important person in your business is unable to work for any such reason, the insurer compensates your company. This allows you to keep your business open until they rejoin work or you find a suitable replacement. In this sense, Key Person Insurance is intended to act as a locum replacement cover (a locum or a locum tenens is a person who temporarily fulfills the duties of another). Also remember that with Key Person Insurance, your company pays the premiums and the company itself is the beneficiary of the policy.

Do I need Key Person Insurance?

Having a Key Person Insurance policy is vital for businesses with two or more partners. In case someone else is actually running your business, you should definitely protect your key persons.
Ask yourself this question – If I (or any worker) was unable to come to the job for say, three to four months, would the company still be up and running when I (or that worker) came back?
If the answer is a definite yes, you should look at income insurance or income protection as a better option.
However, if there is the slightest doubt about a yes as the answer, or if the answer is no, then you should opt for Key Person Insurance.

If you own a small business, protecting the key person is even more critical because of their importance to your company. A smaller company like yours might not have the advantage of large infrastructure or employee count to see through a difficult period. Often, your business is also the primary source of your household income. Losing the business and the income that comes with it can make it hard to make both ends meet. In the absence of backup options, the loss of a key person could spell real trouble for your business.

Benefits of Key Person Insurance

Key Person Insurance helps you keep your business running, even in the absence of one of its most important persons. We have listed below a few ways this policy can support your company:

• Spending time and money to recruit and train new staff
• Hiring temporary staff to see through the period of leave
• Meeting business expenses and working costs
• Making up for any revenue loss (for example due to declining sales)
• Paying off debts and other commitments
• Compensating for projects being postponed or permanently cancelled
• Maintaining an income source that can be used for the household
• Whittling down the business in a manageable manner, if the need arises

As you can see, being insured is the key to your continued financial stability during a tricky situation for your business. At a time when you face the added pressures of working without one of your main employees, this will let you worry less and spend more time looking for a possible replacement. The policy also protects the financial interests of small businesses, which face higher risks than others on account of lesser staff and more centralised working models. During an emergency situation, this could prove to be the difference between a business tiding over a tough period and a business hurtling towards bankruptcy.

Ask for expert advice.

We hope that this article has given you a good idea of the need and benefits of taking on Key Person Insurance. However, as with other issues revolving around your business, it is always good to consult a trusted financial adviser before you take the final plunge. An expert will explain to you the risks facing your business and whether Key Person Insurance might help you. If you do need it, he/she will advise you on the terms and the cost of the policy. Even if it turns out that you don’t need it, you will be able to learn more about life insurance and personal risk planning, which will afford you greater peace of mind as a single business owner.