By Francis Aldrich
A business is the sum of all its people, not only the owner. Should a key person – someone whose services and knowledge are instrumental to the running of the business, such as a co-owner or employee – die, become disabled or fall critically ill, the business could suffer not only a personal loss but a loss of income. It is therefore important for the business owner to consider this when implementing a business protection strategy.
Among the risks a business could face are:
•The loss of critical skills and expertise.
•Difficulty to replace such a person.
•A time delay to replace such a person.
•A potential loss of operating income.
•An impact on the business’s sustainability and profitability.
In the same way that short-term insurance can compensate an individual or employer for losses regarding physical assets, so too can employers protect the business for the loss of a key person through life insurance, which is owned and paid for by the employer. Should a key person be affected, the policy proceeds will be payable to the employer.
The other concern which a business needs to consider is that a deceased co-owner might also be a key person in the business whose skills or relationship with customers or suppliers is critical to the success of the business.
By implementing key person cover, the employer will have the peace of mind that funds will be accessible to absorb the loss of a much-valued person. More importantly:
- It covers an operational loss during a period of readjustment.
- It pays additional expenses of finding, employing and training new employees.
- It ensures continuity of credit and effectiveness of the business and its activities.
In today’s economic climate and the risks resulting from the Covid-19 pandemic on business survival, every business owner should consider their business assurance needs and have strategies in place to guard against the untimely loss of an employee who contributes significantly to business continuity and sustainability. Having the right business insurance solutions with the exact coverage required by most businesses is a no-brainer and should include key person cover, buy-and-sell cover, contingent liability cover and credit loan account cover to manage any eventuality a business will face.
Francis Aldrich (Certified Financial Planner) is Technical Marketing Specialist at PPS.