Research has found that 55 per cent of businesses believe they would cease trading as a result of the long-term incapacity, illness or death of a key employee. However, only one in five companies has key person insurance in place to provide cover in such an emergency.
Other findings from the Scottish Widows 2013 Business Protection Report include:
• 77 per cent of businesses believe they have at least one employee whose absence would ‘seriously impact the profitability or survival of the business’
• 42 per cent of businesses now have liabilities such as business loans, mortgages and overdrafts – up from 34 per cent in two years
• 34 per cent of businesses with liabilities have no financial plans in place for the loss of a key person
• Delivering commitments and promises to customers was a priority for 68 per cent of businesses; insuring a key person was only a priority for three per cent.
Small businesses in particular would be adversely affected by the loss – temporary or permanent – of a key person. This is because almost three quarters of respondents were the owner, founder or partner of their company, or even all three.
It may be worth considering key person insurance to provide cover for the business in the event of financial losses arising from the absence of an important member of staff.
Your key people are those people who possess skills or knowledge that nobody else in the firm holds or that it would be extremely difficult, expensive or impossible to recruit into the business; company directors, lead salesmen and certain technical staff, for example.