Just as every great movie is carried by a star performance, so too do most small businesses rely on a key performer. Here’s how to protect your business from bombing at the box office with key person insurance.
As the name suggests, key person insurance covers a key worker – one who is incredibly important to your business.
This importance could be measured by the worker’s depth of knowledge, contribution to profits, crucial skill or overall input.
In a small business, this person is often the owner or a partner and the insurance usually covers illness, disability or their death.
Basically, it allows the small business to offset both revenue losses and costs incurred due to the absence of the key person insured.
Policies vary depending on the size and scope of the business, with most policies allowing the coverage of several key people at once.
However, it’s worth keeping in mind that there’s usually a waiting period between 30 days and one year. It all depends on how much cover you want to take out.
Who usually takes out key person insurance?
Usually, the business owner or owners take out key person insurance. But it can cover employees who are integral to the business, too.
In the case of a partnership, partners can take out a policy on one another.
It’s important to note that income protection isn’t the same as key person insurance. While income protection covers an individual facing a loss of income, key person insurance covers the business’ losses.
In other words, it covers revenue losses and costs related directly to the loss of the key person. That includes whether he or she is no longer able to work at all, or able to work in a limited capacity only.
Why is key person insurance important?
The success of a small business often lies in the strength of just one – or a few – people.
Unlike big businesses, small businesses don’t have scores of staff to fall back on.
By taking out key person insurance, you can protect your business against the sudden illness, injury or death of a key worker.
Usually, cover is available for between $5,000 and $60,000 per month.
With those funds you might decide to hire a temporary employee or retrain an existing one.
We’ve got you covered
If you’d like a hand in setting up key person insurance for your business, then get in touch.
We’d love to help ensure your business continues to put on a blockbuster performance – regardless of whether you’re missing your key performer.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
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