Many small businesses are not aware of the effects of suddenly losing a key member of staff and so having key individual insurance for your business is very important.
Many small business owners do not have adequate insurance in place to protect their company against the sudden loss of a key employee and many are unaware that key person insurance is available.
What is key individual insurance?
Key individual insurance (also known as key person insurance) is an insurance policy a business can take out to protect itself against financial loss due to a key person in their business dying or being diagnosed with a critical illness. This type of cover is term insurance and will pay out a cash lump sum if the named key person dies and some providers also offer this on a critical illness basis too.
Who is a key individual?
A key individual would be described as someone who plays a vital role in the financial success of a company. It may be the founder or the person who sets the business strategy, or a top salesman responsible for bringing in profitable business.
How does key person insurance work?
The key individual insurance is either a life insurance and/or critical illness cover policy which a business takes out to protect the life of a key employee within their company. This insurance would be owned for and paid by the employer and any claim made against the policy would be paid out to the employer.
For example:
- The company takes out a policy on the key employee,
- The company pays for the premiums and is the beneficiary of the insurance policy in the event of a claim being made,
- If the insure employee dies within the term of the policy (or is diagnosed with a critical illness if this is also insured), the company will receive the payout.
The idea behind this kind of life insurance, is to protect a business that may be reliant on one or two key employees. With this protection in place, a company will have the money to fund sick pay and recruiting new staff and have funds available to protect against any wider impact the loss of an employee may have on the business.
The death of a key person in a small company can have catastrophic consequences for a business. By having this type of insurance in place, the company will have help to survive the loss. And in the worst-case scenario, the money can be used to pay off debts, distribute funds to investors and close the company down. In some cases, this insurance can protect a small company against bankruptcy.
At Resolve Financial Solutions, we have whole-of-market access so we can find the best kind of policy to suit your needs. Get in touch today for a free, no-obligation chat. Call 01932 943028 or email info@resolvefs.co.uk.
*Please note: Life Assurance plans typically have no cash in value at any time and cover cease at the of the end of the term. If premiums stop, then cover will cease.