As a business, you might be interested in learning more about something called key man insurance. This is another type of policy that you can take out as a business owner, and it provides you with a level of cover in a certain area.
In this article, we are going to be looking at key man insurance, what it is, and why companies need to have it. If you want to know more about this topic, keep reading down below to find all of the information that you need.
What Is Key Man Insurance?
The first thing that you need to know is what exactly key man insurance is. Key man (or woman) insurance is a policy that allows a business to protect their most valuable employees, hence the name of the cover type.
So, if they lose one of their best employees to death or illness, it could leave you in a bit of a bad situation, with big shoes to fill and nobody to fill them.
If this happens and you have key man insurance, you will receive a lump sum payout from the insurance company. Many businesses on the market right now use this to make sure that even if they lose one of their most valuable employees, the loss of the income they brought in is supplemented by the payout.
Obviously, no amount of money can replace the employee that you have lost, but it will help the business to keep the income that was brought in.
Why Does Your Business Need It?
So, why does your business need this type of insurance? The first reason that companies are going to need this type of cover is to protect themselves from losing profits. The person you have lost was one of your most valuable team members for a reason, and this is likely because they worked hard and brought your company in quite a substantial amount of money.
If this is the case, then you need to make sure your business is still receiving that money for as long as possible, but without the employee there to work their magic, this could be quite a challenge. It is for this reason that you need to be protected against the loss of your most valuable employees.
If your company just consist of you, key man insurance is not going to be necessary. You only need this when you have other individuals in your business that you count on as much as you count on yourself. But, if you run a small company and there are only a few of you there, the tasks might be spread out quite evenly, or some may take on more responsibility than others. If this is the case, then the loss of a key person in your small business could lead to the end of your company altogether.
It’s never easy to lose an employee to death or illness, but if they have been providing quite substantially for your small business, it could be game over. However, the insurance payout that comes to the company could be enough to keep you afloat for just long enough to either hire someone else to fill the position or find a way to manage.
Who Can Benefit?
Small businesses particularly, are going to be able to benefit from this kind of insurance. Key man insurance is mainly focused on those businesses that are small and need the help if they lose someone that they count on. Larger companies could also benefit from this.
However, it is usually the case that the larger the workforce, the easier it is to pick up the responsibilities of the person who is no longer with the company. When you have a small business, this is going to be a lot more difficult, and that is why small businesses are the ones who benefit most from this type of cover.
We have discussed above some of the reasons why your business needs key man insurance, but there are some other advantages that we have not yet mentioned.
The main one is that the payout is a large sum of money and because this goes directly to the company, it won’t take very long to get to you. Some insurance policies have a certain amount of time that you have to wait before you can receive the money, but this is not the case with this cover.
We hope that you have found this article helpful, and now know more about key man insurance and why your business needs it.