Key People

Losing your most valuable assets

If something happens to a key person, what would happen to your business?

When you’ve worked closely with someone for many years building a business, it’s easy to take for granted the essential and valuable part they play and to assume they’ll always be there. However, sometimes the unthinkable can happen without warning.

Appropriate protection guards your business against the loss of a key person and the revenue they generate. Most businesses rely on key people, without whom the business would struggle or even have to close.

Most businesses protect their physical assets such as their plant, equipment, stock and buildings. However, it is their human assets which provide the initiative, drive, skill, specialist knowledge and ingenuity to make the business successful and profitable.

In many small to medium-sized businesses, there is often a financial and reputational reliance on key people.

What plans can you put in place?

Putting a plan in place will help reduce your dependency on a key person and provide enough funding for the business to survive.

  • Key Person Protection insurance can provide a regular payment should a key person no longer be able to work due to illness, injury or death. A lump sum may be paid on death or total and permanent disablement, allowing the business time to make arrangements or appoint a replacement.

  • Ideally, emergency funds should be set aside to create a buffer should your business fall into financial difficulty.

What is a key person?

A ‘key person’ is someone whose continued association with a business provides it with a significant and direct economic gain. This means more than just profit and could include, among other things, cost savings, customer or supplier goodwill, access to credit and customers or most importantly, access to intellectual capital.

A key person could be a:

  • Managing Director whose expertise and ingenuity enables the business to run smoothly and generate profits

  • Sales Manager/Salesperson whose contacts and methods give the business a competitive edge

  • Financial Controller who has set up a budgeting and reporting system that saves the business money

  • Working Director who does the work of two employees, but draws only a moderate salary – so that more money can go back into the business.

How much cover do you need?

It can be difficult to put a value on a key person and gauge the impact of their loss on your business. To determine the necessary level of cover, you need to discuss the following matters with your adviser:

  • What is the estimated loss of specialist skills?

  • What is the cost of recruiting a replacement?

  • What are the increased costs in current projects?

  • What is the value of any reduction in credit rating or ability to borrow?

I have been a consultant for the last 17 years, eight of which in the security industry working for Signature Security, CR Kennedy’s (a CCTV wholesaler) and Ingersoll rand (Allegion). I have in-depth knowledge about different types of life risks which I now utilise to help family's and business owners put the appropriate risk protection in place. I am a Financial Adviser (FSP276605).

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