Figures published at the end of last year state that there are 5.6 million small businesses in the UK that employ less than 50 people. If you run a small business, it’s likely that you’ll rely much more heavily on the individual members of your workforce than much larger companies do. With people taking on multiple roles and responsibilities, you could find yourself in dire straits if you suddenly lose a key member of your team. In truth, more than half of all businesses surveyed by Legal & General thought they would cease trading in under a year following the death or critical illness of a key person.

Regrettably, statistics calculate that if a business has five key people or shareholders in their early 40’s, that there’s a 39% chance that one person will die before they reach the age of 65.

Key person insurance is one way in which you can ensure your business remains operational if an essential worker is no longer around to work with you.

What is key person insurance?

Key person insurance is a type of policy an employer takes out on a key person within their business. In many cases, the key person is a director, manager or chairman - but it could be anyone without whom the business would suffer. Someone whose knowledge, work, or overall contribution is considered uniquely valuable to the company.

The people who are covered by key person insurance are the ones whose sudden absence could seriously affect the operations of the business. If you’ve got people like that in your company, or if that person is you, making an allowance for key person insurance should be a consideration for your business.

As well as life insurance, key person insurance can cover your key workers in the event of a critical illness that requires significant time off work, or if they are permanently disabled and therefore unable to continue to do their job.

Unlike a personal life insurance policy, the business pays the premiums, and it is the business which receives the lump sum benefit to cover its loss. At a time like this, businesses could benefit greatly from a lump sum becoming available to stabilise cash flow and keep the business trading as normal.

The policy pay out could help towards replacing that employee or providing a cash injection to cover the proportion of profit that employee is responsible for – key person insurance is designed to give you a bit of breathing space and so you can put things back on track.

When you have a key person, keeping things going when they are gone can be a tough job. Although creditors and your employees may be sympathetic to your predicament, few people can afford to lose salaries or planned payments while you’re getting things back on track. Key person insurance could provide enough financial support to cover these outgoings, for the very least in the short term.

Finding, hiring and training of a replacement key person can be expensive and time-consuming. With money available to meet the costs of recruiting and training a new worker, you’ll be able to take your time and find the best person for the job.

Sometimes banks and other lenders will ask small business owners to have a certain level of insurance to obtain credit. Key person insurance can often provide enough financial protection to satisfy these demands, helping your business become a more attractive financing prospect.

If you run a small business and you feel your successes are partially or wholly dependent on the presence of one or more key workers, it’s important not to overlook the benefits of key person insurance to your business.

If you would like to investigate your cover options, please get in touch on 0800 612 8005. There are many different types of policy that could protect the future of your business and we’ll go through the choices available and make a recommendation to which option is best suited to your business needs. Alternatively, you can give us your contact details here and we’ll call you.