The ‘Protection’ Series Part 1: Protecting Individual Employees that are Vital to Business Continuit

“More than half of UK SMEs would close within a year should a key employee die or become critically ill.”

“A third of SMEs said they had not even considered key person insurance, while another third had not got round to looking into it.”

(Legal & General’s ‘State of the Nation’s SMEs’ Report, 2017)

In our first ever two-part blog series we look at the important subject of ‘protection’. Part 1, below, looks at how to protect the most important people in your business and the impact losing them could have on your business continuity. Part 2 will look at ways to protect your entire workforce, as well as the additional benefits this type of protection can offer in recruiting and retaining staff.

It’s easy to consider insurance for all the things you can physically see and feel in your business, from the building itself to the equipment inside, but what about the loss of income should a key person fall ill or even worse, die.

1. Key Person Cover

What is it?

Losing a key employee, for any size of business, can have a devastating financial effect, especially if that individual has unique credentials that would make replacing them incredibly difficult.

Key Person Cover works by providing life insurance and/or critical illness cover to replace the economic value of an employee if they were to die or no longer be able to work and provide the capital required to recruit a replacement.

Who should be considered for it?

A key person could be the business owner, the managing director or anyone with significant financial impact on the business, should they no longer be able to perform their job.

How does it work?

In the event of a claim, a business would receive a lump sum into the business should the key individual die or be diagnosed with a critical illness.

This does require underwriting, which means the individual needs to be completely honest about their state of health in order for this to be viable, should the time ever come. Let the underwriter decide if a fact is relevant or not, after all, you don’t want to find out you’re not covered for something you omitted to declare.

2. Key Person Income Replacement

What is it?

Accidents, injuries and illness are unfortunately a normal and regular part of life, which also have a knock-on effect on a person’s ability to work.

Key Person Income Replacement provides regular instalments of pay, up to a pre agreed limit, should a skilled employee be unable to work due to an injury or illness.

Who should be considered for it?

A key person in this instance can also be the business owner or managing director, but also consider anyone with unique skills that are not easily replaced, should the individual not be able to perform them.

How does it work?

When someone is unable to perform their role, Key Person Income Replacement covers the individual over for the time they are away. This means they will receive regular payments in lieu of salary up to a pre agreed limit until they can return to work.

Again, underwriting is required, so being truthful is intrinsic to your policy being valid should a situation occur that takes your key person out of work.

Get Expert Advice

According to the ‘State of the Nation’s SMEs’ report, 28% believed cost would be an issue in taking out a key person policy, however this is in fact an affordable form of protection. Seeking the advice of a financial advisor will insure your business has the right policies in place to suit your needs, with an affordable and valuable form of protection.

Reach Laurus Associates directors Karen Barwick and Colin Dawson on: 0191 281 1234

Part 2 of the blog series on ‘protection’ is due out in towards the end of October/ beginning of November.

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