As a business owner, you understand the importance of effective and well-trained staff, particularly those with specialist skills or knowledge. They play a vital role in the success and profitability of your business. However, have you ever stopped to think about what would happen if one of these key employees were to suddenly pass away or become disabled? The consequences could be devastating to your business.
Losing a key person can result in a range of issues, including increased costs for recruiting and up-skilling, a slowdown in turnover, and stricter terms from suppliers. In addition, this loss could lead to difficulties in raising finance, paying back loans, delays in finding a successor, and time lost during the settling-in period. These issues can significantly impact your business’s profitability and longevity.
Thankfully, there is a solution: key person protection. It is an arrangement where an employer insures the life of a key employee for the purpose of compensating the business for the loss of income it would suffer in the event of that employee’s death or disability. The benefits received upon the death or disability of the key person can then be used to absorb disruptions to the business, protect credit facilities, and provide funds to recruit and train a replacement.
However, determining who the key person in your business is and calculating the value of that person can be challenging. Anyone who significantly contributes to the profitability and effective management of the business can be considered a “key person.” This includes individuals with specialist, expert skills vital to the success in your industry, individuals whose presence in the business increases the creditworthiness of the business, and individuals who build goodwill for the business.
So, how do you calculate the value of the key person? The amount of cover that a business should take out on the life of a key person is typically determined by a combination of the estimated number of years it would take for a replacement to reach the key person’s present level of profitability, multiplied by the drop in profits as a result of the death or disability of the key person, or itemizing the actual costs involved in replacing the key person.
At G&S Insurance consultants, we understand the importance of protecting your business from the loss of a key person. We have a team of expert financial advisers who can guide you through the process of determining who your key people are, calculating the value of those individuals, and finding the right key person protection plan for your business’s unique needs.
Our financial advisers can help you understand the benefits of key person protection, including ensuring funds are available for recruiting, training, and developing a replacement, enabling your business and its development to continue seamlessly, protecting the creditworthiness of the business, and potentially making premiums tax-deductible or proceeds tax-free.
In conclusion, the loss of a key person can have a significant impact on your business’s profitability and longevity. Key person protection is an essential solution for mitigating this risk. At G&S Insurance consultants, our experts are committed to providing our clients with expert financial advice and finding the best key person protection plan to safeguard their businesses. Contact us today to discuss how we can help you protect your business’s future.