What is Keyman Insurance?

Keyman is a type of life insurance that is designed to protect businesses against the financial losses caused by the death or long-term incapacity of their key employees. Keyman insurance is often an integral part of the financial affairs of large corporations, however, medium to small sized businesses often forget to consider, or are unaware of the existence of Keyman insurance and the benefits it provides for the unfortunate scenario of the loss of an important worker.

Insurances against machinery and other key assets are considered to be a requisite in the smooth running of any business; however, employees are not often considered to be assets- this is unusual because they are in fact one of the most important parts of any business.  This often comes to light on the eventuality of the loss of a key employer; financial repercussions are highly likely here due to this insurance oversight.

Nine out of ten companies employ fewer than ten employees; these businesses are the most at risk of failure when faced with the loss of a key employee. Death or incapacity of an employee can soon be followed by the end of the business. The proportion of people susceptible to long-term illness is extremely significant, this should set alarm bells ringing for those companies how are not covered by Keyman insurance.

There are four main considerations that should be taken into account when deciding on the type of cover needed: First, businesses need to insure the continuation of income, or the training of a new employee, when faced with the loss of an important person. Secondly, businesses need to insure they can afford to cover the costs of guarantors who have had involvement in their finances. Thirdly, businesses must cover the cost of buying out the shares from the employee by other shareholders; Finally, the business needs to insure against the loss of profit when an employee is absent for a significant length of time.

So, which kinds of employee should Keyman insurance cover? First on the list are the shareholders, directors and partners. Next, the employees who make decisions regarding the direction and the types of change needed for the successful continuation of the business. This is followed by the employee’s who bring in the money that ensures the business is always making a profit, and who are not easily replaced. And finally, consideration must be made regarding those employees who are essential for the smooth running of the company, such as the IT managers. In short, a Keyman is any employee whose loss will cause financial damage to the business; you may be able to think of some more examples yourself.

If you are concerned with maintaining an effective business structure, you cannot afford to neglect the risks of losing key employees, Keyman insurance should be one of the primary considerations in the financial running of any sized company, in any business industry.

Hanson Wealth have offices in Boldon, Durham, Inverness, Standish and North Berwick. We have a community of independent financial advisers based throughout Scotland, England, Wales and Northern Ireland as well as a variety of services available over the telephone or via the internet. So even if you are not based near to one of our branches, we can still ensure that you will get quality independent financial advice from our IFA team.

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