Although not always the case, many businesses depend on one person for their continued operation. This person could be an individual with a specific, hard-to-replace skill, a powerful personal brand, or they may be the driving force behind a small-scale operation. If the “key man” dies or becomes ill and cannot work, then it can jeopardise the financial well being of many other people.
Key man insurance provides the safety net that businesses need. Payouts go to the company in the event of a death or critical illness of the person on the policy, offering a host of benefits. Here are five reasons why you need keyman insurance.
1. Business Continuity
Stopping a business and then restarting it can be a costly endeavour. Cancelling contracts can result in penalties and fees and laying off workers may require redundancy payments. Moreover, the cost of recruiting new employees can also be expensive if you do decide to restart your business. The money paid out from key man insurance, however, can help you keep your operations running smoothly. Not only can you avoid transition costs, but you can also continue to pay off any debt obligations you may have.
2. Your Business Could Go Bankrupt
Losing a key person is one of the primary reasons companies go bust. If you are a sole trader or partnership, bankruptcy is not only a risk to company finances but your personal finances too. Key man insurance helps to protect business owners who have unlimited liability – meaning that a court can order that their assets (like their house or car) be repossessed to pay off debts.Limited liability companies can benefit too. Money paid out can meet debt obligations and avoid companies failing and being struck off the register.
3. Business Growth & Investment
If you want investors to take your business seriously, you need to make sure that your key people are protected. Investors are unlikely to entertain the idea of investing in your business if you haven’t taken the necessary precautions to ensure that they get their money back. Key man insurance provides investors with peace of mind, should something happen to you.
4. Customer Perception
Losing a key person could result in a loss of respect among customers for your company. Many customers will associate the quality of a company with a particular individual in the organisation, rather than with the company brand itself, causing a loss of trade. Key man insurance helps to counteract any adverse effects on cash flow that might result from a change in customer perception.
5. Protection of Your Asset
Owners of many small businesses rely on their operations to provide a stable income for their families. But if a key person gets sick or dies, this steady income can soon dry up, forcing their families to cut back on spending, dip into savings, and, in some cases, move home. Key man insurance protects families from the catastrophic financial effect of losing a key man by continuing to provide money to the business as if it were still fully operational.
Jody is the Managing Director and founder of My Key Finance Ltd. He has over 16 years experience as a protection adviser and is an authority within the UK business protection market. Jody has written articles for Business Matters Business Directory, and been featured in Forbes. As editor and Author of our blog Jody is hoping to educate and advise people with more in depth details and information on the various subject relating to the protection market.