As a small business, you rely much more heavily on the individual members of your workforce than many large companies do. With single people taking on multiple roles and responsibilities, you could find yourself up a certain creek and short of an oar if you suddenly lose a key member of your team.
Key man, or indeed key person, insurance is one way in which you can ensure your business remains fully operational in the event that a crucial worker is no longer around to work with you. Here’s what you need to know about key man insurance, and how it can benefit your small business.
What Is Key Man Insurance?
Key man insurance is quite simply life insurance that protects your business in the event of losing a key person. In most cases it is taken out on the owner and partners, but in some businesses it may also include a key member of staff or two. As well as life insurance, key man insurance can cover your key workers in the event of a critical illness that requires significant time off work, or if they are permanently disabled and therefore unable to continue to do their job.
The people who are covered by key man insurance are the ones whose sudden absence could literally sink the company. If you’ve got people like that in your business, or if that person is you, considering key man insurance should feature prominently on your (probably very long) list of things to do.
What Are The Benefits Of Key Man Insurance?
Key person insurance is designed to give you a bit of a slush fund, so that you can put things back on track. It’s a bit of breathing space for you and your business, and could make all the difference between a rather sad and sudden demise of the company or a healthy recovery following disaster.
Here’s how it can work for you:
- Maintain your cash flow
When you have a key person who is a major contributor to your revenue, either via direct sales or management of cash flow, keeping things going when they are gone can be a tough job. Although creditors and your employees may be sympathetic to your plight, few can afford to forfeit salaries or planned payments while you’re getting things together. Key person insurance can provide sufficient funding to cover these outgoings, at least in the shorter term.
- Pay for recruitment and training
Locating, hiring and training of a replacement key person is expensive and time consuming, and it’s not something you want to feel pressured to rush either. With money available to meet the costs of recruiting and training a new worker, you’ll be able to take your time and find the best person for the job.
- Protect your assets
If your business has mortgages on buildings, repayments to meet on equipment or facilities and other short term financing agreements, your business could be at risk if you are unable to make these payments. Using your key person insurance, you can keep up the repayments on these valuable assets, protecting your company from repossession.
- Meet lender requirements
Sometimes banks and other lending institutions will ask small business owners to have a certain level of insurance in order to obtain credit. Key man insurance can provide sufficient financial protection to satisfy many of these demands, helping your business become a more attractive financing prospect.
- Make executive roles more appealing
Attracting and retaining high performing executives for your company can be highly competitive at any stage of your business. By providing key person insurance for your most valuable workers, and then tying it into their retirement package, you make working for you a more attractive, lucrative proposition.
As a small business, no doubt you are already swamped with ideas for financially beneficial investments. However, if you feel your successes are partially or wholly dependent on the presence of one or more key workers, you really can’t afford to overlook the benefits of key man insurance to your business.
If this sounds like a sensible idea and you would like to explore cover and costs, please get in touch. I can be reached on 01252 757 277 or by completing this contact form.