Consider key person insurance for your small business

In this Q&A Jody Pearmain talks about how one often-overlooked form of insurance can be critical for your business.

Why did you start your business?

Ten years ago I was advising mortgages and protection and the company I was with did a bit of key man insurance. We were all made redundant after the financial crash in 2008 and I thought that was the way to go, because there didn’t seem to be any company out there specialising in business protection, so I started

So what is key person insurance?

Key person insurance is a life insurance for businesses. So let’s say you have a top salesperson who’s making you a lot of money; your company relies on that person for a chunk of its income. If that person were to die or become critically ill it can have a big financial impact on your organisation and that is a big reason for companies going out of business.

Key person insurance will pay out a lump sum normally to a company in the event the person dies or becomes critically ill, and that money can be used to cover loss of profits, maybe bring someone in temporarily, cover debts, and keep the staff paid until the company gets itself back on its feet. 

What sort of customers do you have?

Our customers go from small one-man-bands up to corporate companies. in our experience, most that are insured tend to be aged between 35 to 60; largely company directors. We do a lot of tech start-up companies, and since accountants tend to know quite well what the pitfalls of losing key people can be, we work with a lot of accountancy and financial businesses too. 

What advice would you give companies on taking out a policy?

Well, a lot of companies don’t know about this particular type of insurance. There is a gap in the market, and most companies do not have key man in place. it’s quite normal practice to insure your equipment, but the most important thing in a company is the people. 

Unfortunately illness and death can happen to anyone. If your business relies on a particular person for a proportion of the income you should look to insure them for an amount that covers this and possibly other financial consequences such as bringing in a replacement. 

It’s priced like life insurance; risks are taken into account such as age, whether the person is a smoker, health issues and so on.

Nobody likes taking out insurance. With policies like this you certainly hope you will never need them. But in the event that something does happen to your key person, this will probably be one of the best insurance policies you ever take out

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