Managing a business during a global pandemic presents a unique set of challenges. No two businesses are identical, but business protection is a crucial step your clients can take to protect themselves and their company, regardless of the type or size of business.

Although your clients might insure their premises or their company vehicles, one often overlooked form of protection is “key person insurance”.

Here’s why your business-owner clients should put it in place now, and how we can help.

What is “key person insurance”?

Key person protection is life insurance bought by your client’s business to provide a payout on the death of a key individual. Whether a chief executive, a joint owner or a colleague with critical knowledge that would need replacing, the insurance can cover any person deemed to be of key importance.

The death of a colleague will mean a difficult and emotional time for your clients and their business. Knowing that money will be available to cover the cost of training or to find a replacement – helping to ensure the business’s continued success – will give your clients peace of mind and one less thing to worry about.

3 reasons your clients should consider key person insurance

1. Can they afford not to?

With so many small and medium-sized businesses already struggling because of the coronavirus pandemic, spending extra sums on business protection might not be high on your clients’ list of priorities.

But could the business survive the loss of a key person?

According to research by Legal & General, the answer may well be “no”. It found that the risk to businesses of losing a key member of staff could be huge, with 63% of sole traders having to cease trading immediately on the death of a key staff member.

Source: Legal & General

Sole traders understandably fare the worst, but a massive 40% of businesses could fail within a year of the death of a key member of staff.

Paying out a monthly premium now could save your client’s money in the future, and ultimately save their business.

2. Replacing or retraining staff isn’t cheap

If your client’s business is dependent on the expert knowledge or client base of one individual, the cost of replacing that person might be difficult to calculate.

The cost of cover, like other life insurances, will vary depending on the age, health, and the type of work done by a given employee. The term of the policy will also need to consider how long a key employee has left until retirement, and how long it might reasonably take them to train other members of staff to the same level.

If the death of a business partner could potentially mean the loss of all their clients, the cost to the business could be significant.

Your clients will also need to consider whether they add critical illness cover to their plan. Critical illness cover generally pays a lump sum if a key person within a business is diagnosed with a serious illness listed on the policy.

Illnesses covered are likely to include heart attacks, strokes, and certain cancers, as well as conditions such as multiple sclerosis.

3. Peace of mind

The emergence of Covid-19 might have uncovered a weakness within the structure of your client’s business. Having worked hard to build it up, and with dependents reliant on the income it brings, the importance of its continued success is clear.

Accident or illness can occur at any time, regardless of the age or health of a company’s key personnel.

Protection against the unexpected is vital and can give your clients peace of mind that their business and loved ones will be financially stable even if the worst should happen.

Other forms of business protection to consider

Key person protection isn’t the only form of business protection for your clients to consider:

  • Share Protection

The death of a fellow shareholder could mean your client losing some control over how the business is run. Share Protection is a form of life insurance policy set up on behalf of each shareholder for the value of their shares, written in trust to the other key members of your client’s business.

  • Business Loan Protection

A business owner might also consider business loan protection to cover the cost of any outstanding business debt in the event of a colleague’s death.

We can help talk through the pros and cons of business protection for your client’s business, so get in touch now.

Get in touch

After a difficult twelve months for businesses across many sectors, the importance of business protection insurance and key person protection is clear.

If you have clients who own their own business and would benefit from financial advice to ensure they have the correct level of protection in place, please get in touch with us. Email or call 0116 2407070.