Find out why not investing in a keyman policy could hurt your business in the event of the death or critical illness of a key employee
If you’re a small business it’s likely much of the success of the company comes down to the owners and a few key members of staff.
Even in larger organisations, just a few key people can make a significant impact on the bottom line.
Whether they’re owners, directors or senior executives the contribution they make to the current and future success of the company can be massive.
Even a few experts with specialist skills can create more confidence in customers or even lenders who could finance future projects or growth plans.
But what if one of those key people suddenly becomes too ill to work in the business?
Or, what if they died?
Apart from the obvious personal tragedy, the loss of a key member of staff can have a devastating impact on the future of the company.
It could go so far as to put the company’s entire future at risk.
Despite the importance of these key people, 40% of businesses have no continuity plan in the event one of them dies or can no longer work in the company due to illness, according to a report by Legal and General.
But what are the real consequences of not having a plan or insurance policy like keyman insurance?
Keep reading to find out.
Loss of profits
The definition of a “key person” is someone who is essential to the success of a business.
These are the people who generate revenue and profits for the company.
Without that person in the business anymore, the loss of revenue and profits would be immediate.
Depending on the level of profits that individual generates, it could potentially put the company’s future in immediate jeopardy.
Having a keyman policy in place can help negate these losses in the short-term while you deal with the loss of your employee.
Costs for recruitment and training to replace the member of staff
If you lose a key member of staff then you’re going to have to eventually think about replacing them.
You probably won’t want to think about replacing them in such tragic circumstances, but you’ll have to if you want your business to survive.
Replacing a key member of staff can be an expensive proposition.
For one, if you’re trying to replace a high level executive, you’ll likely need the help of a specialist recruitment firm, which will cost more.
On the other hand, if you decide to promote from within, you could incur some significant training costs to get the new employee upto speed.
This is particularly true if you’re trying to replace a sector expert or someone with specialist skills.
Keyman insurance can help to cover the costs of this recruitment and training.
It could also cover any temporary staffing costs while finding a permanent replacement.
Liability for repaying outstanding loans
If your key person incurred any loans under the business, whether it was for equipment, courses or projects, your business could become liable for the outstanding amount.
Potentially these loans could be a substantial amount.
If they are, trying to fund them out of the business could have real negative impacts on the immediate financial stability of the company.
You can use keyman insurance to help cover the costs of any outstanding loans or debts of the employee so your business doesn’t become liable for them.
Loss of customer confidence
If losing a key person in your business leads to financial problems within your company then you could quickly experience a loss of customer confidence too.
It could make clients and prospects nervous about doing business with you when you’re trying to deal with financial issues.
Without keyman insurance, you won’t have the funds to shore up your company while searching for a replacement, or while training a new member of staff.
However, with a keyman policy in place, you can safeguard your immediate financial future and provide reassurance to your clients and customers that you’re able to continue providing a service.
Harder to raise finance for growth
Oftentimes businesses are only able to secure funding and finance on the back of confidence in the business’ ability to make a profit.
This could come down to the reputation of a key employee who is able to prove their ability.
However, if losing them makes your business less stable, you could find it harder to access finances for projects and future growth plans.
At the least you could find yourself unable to access the best deals on business finance.
Loss of expert knowledge and skills
It’s not just the financial impact of losing a key employee that you have to think about, you also have to consider the loss of expert knowledge and skills in the business and how that will impact your ability to carry out future work.
Replacing those skills and that expert knowledge will be essential, but costly.
Either in recruitment or training.
If you don’t have a keyman insurance policy you’ll be forced to bring those costs down on the business.
Keep your business protected with keyman insurance
Ultimately a keyman insurance policy is a financial safety net to protect your business against the worse case scenario of losing a key employee to death, or critical illness.
Just the loss of a single person in a small business could wreak havoc, increase workloads and potentially reduce profits.
Taking out keyman insurance can provide you with financial cover to ensure you can meet those costs and keep your business afloat.
At Rigby Financial we have a team of keyman insurance experts who can help you get access to the right level of cover for your company and keep you protected.Get in touch for more information.