Since Coronavirus and the end of the pandemic, many more people have looked at life insurance as a way to protect themselves. Businesses are not exempt from financial difficulties and maybe even more so since the pandemic.
]The brains behind your business could be one of the key players in your company. Perhaps there’s someone who’s intimately familiar with the specific design mechanics or engineering behind your flagship product. Maybe there’s an individual who is responsible for inventing, discovering or designing something that’s your business’s intellectual property. So, what would happen to your company if one of these essential employees or the business owner died? The solution for many businesses is to take out key person insurance. My Key Finance offers affordable packages that can protect your company from the effects of losing the people on whom you rely the most.
If a key employee dies while working for your business, a key man or person insurance policy will help keep your company financially viable. This type of insurance is essentially a form of life or (in some instances) critical illness insurance that covers those specific employees who are vital to the company’s survival. If they do die or are unable to work due to illness, the policy pays out a pre-agreed sum of cash that will enable your business to make the changes that become necessary to remain operational. The payout can also be used to pay off any debts, make payments to shareholders, or cover daily expenses.
There is almost always one person who stands out among the others in a company, who has a strong work ethic or who is the personality behind the business. If that’s the case with your organisation, you should seriously consider what would happen if they died or became ill and consider taking out an insurance policy that covers that eventuality. Read on to discover in more detail what key man insurance could do for your business.
Key Man Insurance: Why Its Needed
1. Financial Security
There are many roles within a business that can make all the difference between its success and its failure. There may be someone who’s become the face of your firm, using their expertise, charisma, and experience to increase the business’s profits. If your business relies on anyone whose abrupt departure could leave you unable to operate or create viable revenue, you need to prepare for their loss. As the first online provider of professional advice for company protection and a leading player in the insurance industry in the UK today, it’s our role to help you do that responsibly.
2. Investor Confidence
Shareholders and investment firms always aim for a good return on their investment, and having key man insurance will demonstrate that you have a backup plan in place in case individuals who are critical to the business are no longer there. When seeking additional financing from investors or lenders, having the appropriate insurance to safeguard the business and its key stakeholders against excessive loss is almost always required. Our research shows that only 28% of UK businesses established within the last two years have any kind of business protection, and 46% say they would have to stop trading almost immediately if a key employee died. If your business is one of the many that hasn’t yet taken out a keyman insurance policy, our FCA-approved business protection advisers have many years of experience and will be delighted to advise you on a suitable one for your needs.
3. Continuing Business Operations
The impact of the unexpected loss of key personnel will, at best, disrupt activities. At worst, it could result in you having to wind up the business. Your management team will be clamouring to regain ground, making it harder to meet customers’ and employees’ needs and possibly interrupting credit and collections operations. This is where this form of insurance can prove vital. It can be a stream of income that gives you breathing space and time to seek out extra support, uncover viable alternatives or devise a whole new strategy. You’ll be able to retain your existing clients, avoid losing other critical team members and meet any ongoing debt obligations to avoid going bankrupt.
If you have any questions about this form of insurance, please don’t hesitate to ask; we have a first-class support system in place to ensure you can find out all you need to know and that the process of taking out insurance runs smoothly and swiftly if you decide it’s something your company could benefit from.
4. Fund Contingency
Key man insurance can also help you avoid scenarios where your cash reserves quickly become depleted when shareholders, panicked at the loss of key personnel in the business, attempt to sell their shares. With key man business insurance, your pay-out will enable you to buy those shares while still having your existing cash reserves available to cover other connected expenses. This allows you to preserve stability and control within the business. If you take out a policy with My Key Finance, rest assured you’ll be dealing directly with us – no middle man – so we’ll process your insurance securely and discreetly and will not share your information with any other third parties.
5. Asset Development Opportunities
Permanent insurance plans can be considered assets. If you opt for a permanent policy, you’ll be able to cite it as an asset to help you acquire finance if you wish to expand your company. Furthermore, the benefits you’ll obtain in the event of the death of your key individual may be tax-deductible. To determine whether a particular policy is right for your company, talk to our trained and competent advisors; they will be able to answer any questions about the policy and its effects on and on your company.
The loss of an employee who’s critical to the smooth running of a business can have a host of negative consequences. Customers will still want contracts to be honoured, and you need to be able to preserve their trust in your company. Overall, a financial boost from a key person life insurance policy pay-out can be beneficial as it can provide breathing room for the organisation to plan for contingencies and decide what to do next. Responsible companies always make sure that any costly machinery and other important assets are suitably insured. So, wouldn’t it be prudent to make sure your most important assets, your indispensable personnel, are similarly covered?
If you’re wondering how much key insurance coverage you’d need, the answer very much depends on the company’s unique circumstances. As an example, say you know that the key person brings £100,000 of business into the company each year, then that may be the sum your insurance needs to cover.
Typically, the business owner will examine the company’s turnover and calculate the percentage that the critical individual contributes to the company, then take out insurance for that amount. Every company is different, so it’s best to think carefully about the range of risks to your business if you lose one or more key individuals. To help you do this, we include a key person calculator elsewhere on the site so you can work out specific numbers.
Over the years, we’ve helped tens of thousands of UK businesses secure their necessary personnel, with over £110 million of insurance placed in 2019 alone. We take pride in delivering the best possible service alongside key man life insurance rates that won’t break the bank. We also provide a host of other services aimed towards protecting you, your family, and your business against the unexpected. Read more throughout our website and ask for a quote by calling us on 020 7112 8844. Our dedicated, friendly team will be more than happy to help you.
Secure the future of your business with My Key Finance.
Why You Should Consider Key Person Insurance as Part of Your Succession Planning
Insurance is crucial for business and personal risk management. Losing a key person who would be hard to replace is a major risk for some businesses, especially start-ups and ones at the smaller end of the scale. Key person insurance covers this risk.
Key person insurance takes many forms. Term policies typically last between five and twenty years. Whole life (or permanent) policies provide long-term coverage and build cash value. If a company needs working capital, it can withdraw this money from the balance sheet.
Key man life insurance rates or quotes depend on the insured’s health, age, medical history, and the amount of the death benefit. Premiums are usually tax-deductible when the policy is taken out on an individual, offset against your corporation tax. However, The death benefit typically is taxable, so there’s a need to take this into account when calculating the amount of pay-out required.
Insurance companies may base coverage limits on eight to ten times a key employee’s annual salary. Each company’s cash flow needs will differ when a key employee dies unexpectedly. Evaluating potentially lost income will tend to give a more accurate estimate of the individual’s replacement costs or value to the firm.
The Purpose of a Keyman Insurance Policy
A company buys life insurance for core employees, pays monthly premiums, and serves as the policy’s beneficiary. In the event of the covered person’s death, the company receives the benefits (rather than the surviving partners).
Funds can be used to cover replacement costs. They can also be used to compensate for lost sales or income as a result of the cancellation or postponement of a project or operation in which the deceased person was involved.
Partnership interests, stockholders, bank loans and facilities, and business ventures can all also be covered by keyman insurance.
Keyman cover insurance can be used to pay obligations, provide severance payments to employees, repay investors, and properly close a company if it goes out of business.
Usage of a Keyman Insurance Policy
The company can use insurance funds from this policy to help cover any expenses incurred until a suitable replacement for the named individual is found. These funds can also be used to repay debts or meet other financial obligations; to pay employee payroll and/ or severance payments. In the event of the loss of an individual critical to the running of the business, keyman coverage provides additional peace of mind for management and other key stakeholders. It can also help to avoid confusion if the company finds it has to close its doors as a result. However, it is not intended to cover any personal or family obligations of the named individual; this is where other products such as personal life insurance come into play.
Not all policies will cover the following losses:
- Those incurred when a key employee is unable to work but has not died;
- Profit protection;
- Shareholder or partnership interest protection. Some keyman insurance policies allow existing shareholders or partners to purchase shares or partnership interests.
If you are looking for a specialist in key man insurance policies, ask us at My Key Finance. Our professional and experienced company can offer the best prices for policies of this type available on the market.
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.