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There is a well-worn saying that no one is indispensable. Perhaps not indispensable, but it is equally true that the role of a key player in many a small business can spell make or break in its fortunes. The loss of that "keyman" is therefore something to which every business should pay serious attention and consider the protection that keyman insurance provides.
What is keyman insurance?
Keyman insurance recognises that any business is likely to have one or two members who play a particularly key role in the company. It might be a leading salesman who has a knack for retaining existing clients and winning new ones; it might be the company director, who owns the lion's share of the business. Whoever you would be likely to identify as the key men or women in your own business, the impact of their contracting a serious illness or their untimely death is likely to be severe.
Sales figures could plummet, profits follow in their wake, the bank starts chasing a director's guarantee of a loan, temporary, long-term or even permanent replacement appointments need to be made – the business could stand on the brink of disaster.
Keyman insurance, therefore, can be arranged to ensure a regular income to the business while the key person is unable to work, thus providing a monetary compensation for any losses incurred by their absence. Alternatively, keyman insurance could be arranged so that it paid a lump sum benefit in the event of the death of the key person so enabling the company to buy out any share of ownership or to maintain cash flow to the business pending the key person's replacement.
Does your business need it?
Although very few of Britain's 4 million or so small businesses are covered by keyman insurance, a surprising number of them could safeguard against a very real and significant business risk by arranging it. How real is that risk? It is an established fact that one in five men suffer a critical illness before their normal retirement age and premature death is by no means uncommon.
The profile of British enterprise is dominated by the small business. In fact, 95.2% of all UK businesses employ fewer than ten people. The smaller the number of employees, of course, the much greater the impact of the sudden and unexpected incapacity or death of a key member of that business.
How can I go about arranging keyman insurance?
To date, few small businesses have cottoned on to the likely impact of the loss of a key player and still fewer have realised the lifeline that keyman insurance could offer if the worst should happen. The relevant and appropriate insurance policies, therefore, are few and far between. In these circumstances, the best place to start is a discussion with your independent financial adviser, who will have his finger on the pulse of the most likely providers and will be able to assess the particular and specific keyman insurance needs of your own small business.