Key Person Cover
All businesses should consider using insurance to compensate the business for any financial loss or cost suffered when a key person becomes ill or injured.
Most businesses take out insurance cover for assets that do not make them profits – their plant, equipment, vehicles and buildings.
But it is the human asset that can turn the capital and assets into a profit, through their initiative, drive, skill, specialist knowledge and ingenuity. A key person is someone whose continued association with a business provides it with a significant and direct economic gain.
Economic gain means more than just profits. It can also, amongst other things, include cost savings, capital injections, good will, access to credit and access to customers. A common example of a key person is an employee who is directly responsible for bringing in sales, or who holds key technical expertise on which a business relies.
The most important thing to look at when deciding who is a key person is what impact (financial and other) their loss would have on that business, how quickly it would be felt, and for how long. Perhaps the most appropriate way to look at this is to analyse each potential key person and ask:
Will there be any loss at all (are they even key?)
Will the business be able to keep trading?
Will the business have to wind up?
These simple questions help you establish who you need to analyse, and whether you are trying to replace revenue so the business can continue to trade, or you are trying to establish what it would take to close the business down, repay creditors, and minimise the financial impact on the business owner(s).