Business protection insurance is a core part of being prepared for unexpected hardship or an unforeseen tragedy. While many organisations are thorough in protecting things such as their property and assets, it is also important to protect against the impact of the potential death or serious illness of an owner or other important party.
Should a key member of a business die or become unable to perform in their role, having business protection policies in place could save your organisation. Not only can they enable a company to move forward through adversity, but they can also impact the remaining members’ ability to maintain control of operations. These covers provide relief, protection and aid for various worst-case scenarios for a business.
Key Person Cover
Key person cover (also sometimes referred to as key man cover) is essentially a form of life insurance taken out on a member or employee upon whom an organisation is highly dependent. In the event that this person dies or is diagnosed with a critical illness, a key person policy will pay out a lump sum of cash to ease consequential financial difficulties.
This type of cover can be customised to protect against only the death of a key person, or to include both death and critical illness as triggers for the policy. Organisations that purchase this type of policy will be responsible for paying the premiums, which are generally guaranteed over the course of the policy’s term length.
When taking out key person cover, consider employees who play significant or unique roles. An owner or top salesperson are two prominent examples. Organisations should also consider those who take sole responsibility for certain aspects of operations, such as a technology officer. Even if primary leaders and other star employees are ready to keep moving an organisation forward, if the only person who understands various software or systems is no longer able to perform their duties, you could experience major business interruption.
According to industry experts, 46 per cent of UK businesses would be unable to continue trading if a key person died or was unable to continue their duties due to injury or illness. Although organisations of all sizes should consider key person cover, small organisations in particular may be at the greatest risk without it. Such businesses may often be reliant upon a small number of leaders. If one of those leaders were to suffer a tragedy, would their replacement instil the same level of confidence and loyalty among employees? A dip in profits or interruption of operations could lead to decreased morale and staff seeking alternative employment. The entire culture and future of the organisation could be at risk.
Key person cover provides security and stability during what could be an organisation’s darkest hour. In the event of an important leader or other party experiencing such misfortune, policyholders will at least be able to have some financial relief while handling the hardship of the event itself.
This policy operates with a similar purpose as that of key person cover, but applies to shareholders who hold a stake in an organisation rather than an internal leader or employee. In the event of misfortune befalling a shareholder, this cover will help remaining shareholders buy back the shares from the insured party.
Without shareholder protection, an organisation’s surviving controlling members may not be able to maintain the direction or future of the business. If a shareholder or partner dies without leaving instructions regarding their shares, family members are generally next in line to obtain the assets. This can cause a number of issues. Moving forward, the family may decide to take over the duties and responsibilities of their deceased relative. Should this happen, it’s possible that an organisation would suddenly have to deal with an inexperienced or disinterested person performing a key role. Alternatively, if the family decides to sell the shares to a third party, it could result in the remaining shareholders or partners losing control of the organisation as a whole.
Like key person cover, shareholder protection can be adjusted to include death, or both death and critical illness, such as cancer or a heart attack. In the event of shareholder cover funds being paid out to a policyholder, the family of the deceased or ill party will also receive compensation. This amount, as well as other details, should be agreed upon at the time that a policy is finalised.
The loss of a key leader or other party within an organisation will already be a difficult event to overcome, culturally and emotionally. Transition periods are challenging times for any organisation, regardless of size. Insuring key people and shareholders can at least provide peace of mind that an organisation’s finances will not be devastated by such a tragedy.
For more information about key person cover, shareholder cover or business protection insurance, speak to one of our protection specialists on 0117 325 2224 or at email@example.com.
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This article is for general information only and does not constitute advice.
Brunel Wealth Ltd is an appointed representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority. Company registered in England, number 12281992, registered office 3 Temple Quay, Temple Back East, Bristol BS1 6DZ