How to protect against the loss of your star performerby Wealth Architects / 12.09.2018
Just as every great movie is carried by a star performance, so too do most small businesses rely on a key performer. Here’s how to protect your business from bombing at the box office with key person insurance.
As the name suggests, key person insurance covers a key worker – one who is incredibly important to your business.
This importance could be measured by the worker’s depth of knowledge, contribution to profits, crucial skill or overall input.
In a small business, this person is often (but not necessarily) the owner or a partner and the insurance usually covers illness, disability or their death.
Basically, it allows the small business to protect risk to revenue, saleable value, and repayment of debt due to the absence (temporary or permanent) of the key person insured.
Policies vary depending on the size and scope of the business.
Who usually takes out key person insurance?
Usually, the business owner or owners take out key person insurance. But it can cover employees who are integral to the business, too.
In the case of a partnership, partners can take out a policy on one another.
It’s important to note that key person insurance serves a very different purpose to personal life insurance. While personal life insurance covers the individual and their family, key person insurance covers the business’ potential losses.
In other words, it covers losses and costs related directly to the loss of the key person. That includes whether he or she is no longer able to work at all, or able to work in a limited capacity only.
Why is key person insurance important?
The success of a small business often lies in the strength of just one – or a few – people.
Unlike big businesses, small businesses don’t have scores of staff to fall back on.
By taking out key person insurance, you can protect your business against the sudden illness, injury or death of a key worker.
Without the right cover, your business would have to rely on its own means to get by, and this could be ultimately detrimental.
We’ve got you covered
If you’d like a hand in setting up key person insurance for your business, then get in touch.
We’d love to help ensure your business continues to put on a blockbuster performance – regardless of whether you’re missing your key performer.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.