Written by:
Graham Smithson, Employee Benefits Consultant (Cardiff and Bristol)
Hanover Financial Management Ltd
Hanover is a member of The Ince Group.
Insurance is a fundamental component in establishing and running your business.
Most business owners are likely to arrange insurance cover on their buildings, cars and equipment; and are covered for ‘loss of profits’ in the event of a catastrophe such as a fire or flood. However, many businesses do not insure their greatest asset – the key people who ‘make their business happen’. For a relatively low cost, it is possible to insure your most influential people in the business for life cover, which would help your business survive should they die prematurely. It is also possible to cover critical illness, although this does add to the costs.
Who are your key people?
A key person within a company could be anybody who is regarded by business owners as having a significant impact on the financial position of the company, and whose loss is likely to require the urgent action of the business owners to ensure continuity. This could include anyone whose role is ‘key’ to the business due to their level of expertise, knowledge or contacts. They could also be crucial because of their importance to the financial standing of the business for instance; those who contribute significantly to sales or those who own a  significant amount of the company or partnership shares.
Also, as business owners often lend money to their company, these types of internal loans can be taken into account under key person cover – as well as the servicing of ordinary bank borrowings such as overdrafts, and longer term loans arranged on property.
How does key person assurance work?
Put simply, a key person assurance is a life or critical illness insurance policy arranged on ‘key’ persons within a business. In the event of death, serious illness or injury, the business can receive a fixed amount of money to buy the business some time to recover. The funds may be used to cover the cost of recruiting and training a new key person, providing temporary staff, or to compensate for lost revenue.
What are the further benefits of key person assurance?
If a key person should die, banks are usually in a position to quickly vary the terms for short term borrowings such as overdrafts. However, with key person cover, the business can be in a position to be able to inject a capital sum at a time of uncertainty. This should give considerable reassurance to creditors and help secure the prospects for continuation into the future.
This valuable protection can be secured at very low costs for life cover, with higher outlays in relation to the more comprehensive critical illness insurance.
The information in this article is provided for guidance purposes only and does not constitute financial or legal advice.
For more details on this important area of business governance, please contact our specialists at Hanover: Graham Smithson on 07867 453030, or Richard Brazier on 07917 390344.
