Want VC? Better Get Key Person Insurance

If you’re on the hunt for VC funding for your start up, no doubt you’ll be willing to reveal plenty of business details to potential backers, to ensure their trust and confidence. From operations to finances, vision to processes, you know your business inside and out, and are ready to tell your VC everything you know. But did you know you could be asked to step on the scales too?

venture capital, key person insurance

OK, so maybe your investor won’t be so rude as to ask you for a medical right then and there, but chances are they’ll be concerned about the health of your company, and not just on paper either. Start up’s inevitably lean heavily on just a few critical founders, without whom there would be no business. For anyone looking to plough some money into this venture, they’ll want to make sure those founders are fit and well too.

How Key Person Insurance Can Help

Key person insurance is like a life insurance policy, but tied to your business instead of your family. In the event of the untimely death of one of the crucial parties in the business, a lump sum will be paid out which can be used to pay for a replacement, to settle debts or to wind down the business as appropriate.

With no insurance in place, debts and costs of closing the business would be left to investors and the company to shoulder, as start-ups typically have little or no cash reserves. A key person insurance policy gives them assurance that they will not be left responsible if the worst was to happen.

Key person insurance often includes a medical, but don’t panic if you’re not a fan of the gym. Being out of shape or having an existing condition won’t mean you can’t get insurance, just that your premium could be higher. It might seem a bit concerning at first, to be asked for a policy on your life, but take it as the complement it really should be.

Who Needs Key Person Protection?

As a new company, you can either go ahead and get key person insurance for those people who you feel your business could not function without, or you could wait until you’re in touch with a venture capitalist to see what their requirements are. It’s not only the founders who can have key person insurance either. Think about:

  • IT and software developers
  • Financial directors
  • Business developers
  • Salespeople
  • Marketing executives

Your business is individual, and your key person or people will be unique to you. Your VC will not be asking for key person insurance on every person in the business, just those whose skills and knowledge the business would struggle to survive without. If you are a founder and are not asked to get key person insurance, don’t be offended either. Just think of the money your business will save in premiums!

Key person insurance is becoming a ‘must have’ for many VC’s out there. Even if you’re not in the market for VC right now, it’s good business practice to protect yourself from the start. Talk to an expert about key person insurance today and get your business off on the right foot.

For an informal chat about your business and whether key person insurance is something you should consider, give me a call – 01252 757 277 or request a call back here.