Key person cover is a company-owned insurance policy taken out to protect the company from the illness, injury or death of someone who is key to its success.
That may be the owner or owners, or it may be a key employee. For example, a skilled cabinetmaker may be key to a bespoke furniture company or a computer programmer may be indispensable to a business that has been streamlined by custom-built software.
Benefits of having Key Person cover:
1. Protect profit
- The loss of a key person can severely hamper a company’s productivity and therefore its profits. The greater the contribution of the key person, the more acutely this will be felt. This makes key person cover best suited to small and medium-sized enterprises (SMEs) where the contribution of one or a small number of people tends to be proportionally higher. Key person cover can help to replace lost profits while the business gets back on its feet.
2. Meet liabilities
- Key person cover can protect against any liabilities that a business may have – a bank loan, for example. Debt repayments would still need to be met even if someone key to a company’s operations became ill or died and profits dwindled. In the event of such unfortunate circumstances and without cover in place, a lender may feel uneasy about the outstanding debt and call in the loan.
3. Fund recruitment
- Key person cover can fund the recruitment of a replacement. Getting the right individual may take some time and involve advertising and recruitment agency fees. The new employee may benefit from training, and key person cover can help to meet these costs, too.
