If an employee crucial to the function of your
business becomes disabled or dies, would day-to-day activity continue as usual
or would disorder and uncertainty ensue? Would you be able to maintain the same
level of business expectations and revenue stream? How will you cover for the
financial loss of the employee or pay for a temporary replacement during his or
her recovery? Key person insurance could help you answer these questions with
confidence. It is designed to provide financial stability in a time of stress
and anxiety due to the sudden loss of an important employee.
Who Needs Key
Person Cover?
Many businesses benefit from key person insurance, like those with:
- Employees who would be extremely difficult, time-consuming or expensive to replace (ex: central decision makers, chief executives and directors, vital sales managers or employees whose ideas have critical commercial impact)
- Highly skilled employees with unique training
- Employees with exclusive ties to key clients
- Narrow profit margins where a staff loss would mean financial trouble
- A need to protect their revenue stream from loss (for example, hospitals protecting against the loss of a high-earning, respected surgeon)
- Concerns that a high revenue-producing client (ex: actor, writer or other entertainer) became disabled or died and was unable to perform
- In the event a vital employee becomes disabled or dies, this type of insurance provides the company with income to make up for financial loss or use for temporary replacement costs.
Considerations
Before Purchasing Key Person Insurance
Estimate the value of your key employees. Think about
the projects that would be lost without them, the amount of sales generated by
them and the costs associated with replacing them.
Think about the amount of protection needed. There are
several methods to calculate this, including using a multiple of salary or
profits, payroll proportion, and the actual impact method.
Determine whether this cover is necessary and whether
it is already covered under a comprehensive policy.
Create a business continuity plan that outlines how
your business will function if you lose key employees. In addition to proper
cover, having such a plan is vital.
Requirements and
Cover Options
To qualify as a key
person, most insurers require that the employee’s salary be in a top percentage
of the company. Qualifications vary based on the insurer. All key person
policies are written specifically for the employee in question. To learn about
cover options, limits and other plan details, contact us at 44 (0) 20 3638 5152
to talk to an expert at In2Matrix (UK) Ltd.
