Many small and medium sized businesses are often reliant upon one or more key individuals to help drive the company forward and ensure its efficiency and profitability. What if something was to happen to one of those key employees? Have you considered what impact this could have on your business?
The latest research from Legal & General shows that roughly 1 in 4 SMEs (26%) would have to close immediately if a key person passed away or even became critically ill. Surveying more than 700 SMEs, Legal & General found that 15% had already experienced this. With that in mind, protecting your business with Key Person insurance could be a crucial step for your company’s future.
A key person is often defined as anyone within the business who has valuable skills, great knowledge, industry connections or brings in large revenue. It can be anyone who you believe to be intrinsic to the success of the business, no matter whether they hold a junior or senior position.
Key Person insurance helps to protect these important employees, with both Life cover and Critical Illness cover available. It is set up and paid for by the business, and it is the business that receives the pay-out. This helps to keep the company financially stable during a challenging time.
Key Person insurance can be a crucial type of cover for any business, but particularly SMEs who may not have the manpower or cash flow to mitigate the impact of losing a key employee.
Research by Legal & General showed that of those businesses that did not have cover, 70% hadn’t considered or didn’t understand the need for business protection. Consider your own business; what position would you be in if you suddenly lost someone who was critical in the day-to-day running of the company?
Legal & General found that 52% of businesses surveyed would collapse within a year if they lost a key person. Losing a key employee could mean anything from a loss of skills and leadership to a dip in profits. What’s more, you might not see it coming. So, just as you would insure your computers or office building against unforeseen circumstances, why not do the same for your staff?
No one wants to consider becoming critically ill or passing away, but statistics show that every two minutes someone in the UK is diagnosed with cancer while 100,00 people have strokes each year. Without the right protection in place for such an occurrence, your business may suffer along with your employee.
The pay-out from Key Person insurance can be used for a variety of purposes, some of which could be a lifeline for the future of your business. For example, paying for recruitment and any training to replace the member staff, or easing difficulties in raising finance for upcoming developments in your business.
In extreme situations, Key Person insurance could save your business from closing indefinitely. While many understand the need for personal life insurance, it is clear the urgency for business protection amongst SMEs is lacking. However, Key Person insurance could form part of an important succession plan and prevent your business from being quite so vulnerable, whether you are protecting staff, owners or shareholders.
If you’re hoping to find some advice when it comes to taking out the right business protection for your company, get in touch today.
Legal & General State of the Nation’s SME Report 6th Edition (Adviser Use Only)
Legal & General State of the Nation Consumer Trade Final