The damaging effects of loosing a key person
Protecting the business against financial loss requires prior planning
In most organisations, it is possible to identify certain individuals whose contribution is particularly important. Their loss could result in the loss of profits, which could ultimately lead to the business not being able to service or repay outstanding loans, or may lead to plans being curtailed for expansion.
Key man life Insurance cover is a policy taken out to protect a business against the financial loss of the key people who drive the business or against the financial repercussions of loosing them. These key people are typically those whom without the business could financially suffer.
Business owners logically insure their equipment, or their company cars, but what about the most important assets of your company, “the key people,” the directors, partners, shareholders, integral managers, or key IT development specialists or development operators.
Key person insurance will enable you to protect profits that may see a serious fall without that person. In addition, this insurance can provide an income to the company whilst the key person is away from work or to train or recruit their replacement.
Monies can also be made available to the remaining directors, shareholders or partners in order for them to buy out the shares from the original owner. These shares may otherwise fall into the wrong hands such a wife or husband who knows nothing about your business.
The insurance payout could also be made available to anyone involved in guaranteeing business loans or other banking facilities.
The damaging effect of loosing a key person may go well beyond just the cost of their replacement. They could be the sole reason why the business is doing so well. So it is logical that insurance to cover any loss of profits is an important consideration for business owners.
Families of the deceased or long term ill may also want to sell their stake in the business to someone unfit to hold such a high position within the company. Or a member of the family may want to take up a place on the board and make decisions within your company. Insurance policies can be set up to provide the necessary finance to buy the shares from the original shareholder or their family.
Business’s will often have loans or will have raised finance, which will often require a guarantee or charge on their personal property. Lenders may well and often do call in the loan at this time. An insurance product can be structured to pay off this loan and free the business and possibly the family from this financial burden.
For more information or to discuss anything in this article feel free to contact Doug McLean via email or phone.
