Key person Insurance – Protect yourself against some of your biggest businesses risks
As a business owner you might have public liability insurance and you insure your buildings, stock and vehicles. You may even have professional indemnity insurance and legal cost insurance. Is that all? What about your other primary assets – your key person?
Key persons represent the heart of every businesses but no more so than the majority of Canada's small, often family, businesses that have up to 4 employees. Prolonged absence through serious illness or even death can be terminal for some of these enterprises. The risks are the same for limited companies, a partnerships and sole traders.
In this context Key Person Insurance is a must. Key Person Insurance represents a group of insurance plans all designed to financially protect business from the affects of prolonged illness or even death of staff who are central to the prosperity of the business. The insurance can't replace people but it can provide cash to buy time and cover the costs of temporary staff, recruitment, loss of profits or provide a cash injection.
The insurance falls into four categories – insurance to help your business recover during the extended period when your key personnel are unable to work or to train or recruit a replacement, insurance to protect profits, insurance to protect shareholders or partnership interests, and insurance for anyone involved in guaranteeing businesses loans or banking facilities.
Key Person Insurance on those who are central to your business
Who are your key people? They are the ones who steer, create and drive your business. The people without whom your business would lose sales and profits or without whom even the basic viability of your business would be shaken. Look at the Directors, Partners, owners and beyond. Consider the roles of senior managers in sales, technical development and operations – the roles will change in every business but the candidates are sure to jump out at you. Insuring these people will provide the extra cash needed to take on temporary staff or recruit and train a replacement.
Key Person Insurance to protect your Profits
The effect of losing key staff goes well beyond simply the cost of their salaries and the cost of replacement. As they're central to the businesses prosperity, their loss will knock on to the bottom line. You can insure for loss of profits too!
Key Person Insurance to protect Shareholders or Partners
Here we are talking about insurance to protect interests in the event of long-term illness or death. Families may want to sell their stake in the business but the remaining members in the business may not want those stakes held by newcomers. Key person insurance plans can be implemented which provide the necessary finance to buy the shares from the original shareholders or their estate.
Key Person Insurance insuring those who provide personal guarantees
When a business takes out a loan or raises bank finance the lender is quite likely to require a personal guarantee or a charge on their personal property. This especially applies to small and new businesses. So what happens if these guarantors become seriously ill or die? The lenders may well be in a position to call in the loan. What happens then? Again, Key Person Insurance is the answer. Insurance can be structured to pay-off the loan and thus free the business and the guarantor's family, from major worry.
Most of Canada's leading insurance companies offer Key Person Insurance as a development of their Life and Critical Illness Insurance interests. They have all the necessary paperwork available to implement the cover you need and ensure the taxman is kept at bay.
So, can your business afford to ignore Key Person Insurance? You'll be either a brave or foolish person to say NO!