Success in business relies on key individuals who drive value - from revenue generation to strategic vision. If this dependency is left unmanaged or uninsured, your business's success and value are put at risk. This is where the prudent visionary steps in.
By putting protection in place now - while everyone is healthy, working and insurable, a stressful situation in the future can be avoided.
It's common for businesses to rely heavily on a few key individuals when it comes to building relationships with major customers and generating revenue. In fact, it's often seen that 80% of a company's income is generated from just 20% of its customers. However, this over-reliance can pose a significant risk to the business if the key relationship holder is lost.
An important factor in the value of a small business is often the reliance on relationships held by one or a few key people. Favourable terms with a supplier can be based on a key person's relationships or personal reputation. Losing this unique competitive advantage can impact profitability and destroy value in your business.
Some of the most important people to the ongoing operation of a business are often loyal to one individual. Whether it be a charismatic skilled leader, a subject matter expert or a much admired team member, their sudden loss can create a short term downturn in morale and productivity, and long term loss of value.
A business that heavily relies on a single "irreplaceable" individual must consider quantifying and safeguarding against the potential loss of that person. Likewise, if someone possesses a unique talent for innovation or maintaining a competitive advantage, it's crucial to protect against their sudden loss.
The loss of a key person can impact the financial health of your business through a reduction in turnover, production delays, higher costs of borrowing due to reduced confidence, recruitment fees and training costs. These can result in decreased profitability or worse, and put strain on you to deal with.
The risks of losing a key person are greater when you're carrying debt, and even more so if personal wealth is being used as security for the borrowing. Key person insurance can be used to clear debt or support debt repayments whilst also paying the costs of recruiting a replacement.
A skilled leader understands effective practices for retaining talented individuals, yet the unpredictability of death and illness lies beyond their sphere of influence. This is precisely where insurance steps in, to smooth the financial impact when it suddenly hits.
With key person insurance, your business is the owner and beneficiary of a life insurance policy on each individual key to success. If the unexpected happens, the business receives financial help overcome the challenge of the loss, whether it is to meet the costs of a replacement or pick up a shortfall in cash flow.
Oliva is Managing Director in a highly acclaimed company fulfilling its growth potential thanks to surge in sales revenue, a testament to the relentless fervour of Mr Grey, the Sales Director aged 40. His exceptional skills have secured numerous contracts. His latest successful pitch guarantees expansion for the upcoming five years. With financial support agreed with the bank in the form of a £500,000 loan, Olivia looks forward to a prosperous future for the company. Olivia is aware of the integral role Mr Grey plays in the company's success, however, and doesn't want to leave its future in the hands of fate.
Key Person insurance on Mr Grey's life could pay £500,000 to replace lost revenue, settle the outstanding debt or cover the cost of hiring a replacement.
The company took out a 5-year insurance term with fixed monthly payments and the option to top-up cover if the business grows in value. When the 5 years is up, they are guaranteed the option to renew even if Mr Grey's health status has changed. The monthly premium for life cover cost the company just £21.24 a month, so easily affordable. Because a 40 year old man has a 1 in 7 chance on average of suffering a serious illness before age 65, it made sense to pay an extra £140.86 a month to include critical illness cover.
Olivia's decision to insure built resilience into the company's future, providing peace of mind and demonstrating to stakeholders that her leadership encompasses prudent, comprehensive risk management.
Premiums are based on a non-smoker accepted at standard rates during February 2024.
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