Key person insurance

When a key figure in a business dies or becomes unable to work due to illness or disability, it can have a devastating financial impact on the enterprise as a whole. Whether it’s the owner, founder, CEO, or anyone else who plays an important role in generating income, it can be incredibly difficult to compensate for their loss.

Thankfully, with key person insurance, you don’t have to. Designed to cover the decline in earnings resulting from an essential employee no longer being involved in the running of the business, this sort of cover is made to safeguard your venture against any negative fallout and ensure its continued success.

Let’s take a look at why you might want to consider it.

In This Guide:

What is key person insurance?

At Money Expert, we help you to compare key person insurance policies, but we understand that before making any decisions, you want to know exactly what it is that you’re signing up for. As we mentioned above, this type of protection is intended to shield your business against the financial loss you would suffer if a key figure either died or was rendered unable to work due to a debilitating illness or disability.

Paying out a lump sum to help compensate for any shortfall in earnings that may result from their absence, its primary purpose is to protect your company while you become accustomed to the change, so that you can go on to have a successful and profitable future moving forward.

How does it work?

Although it tends to be less commonly discussed than some other types of business insurance, don’t let this fool you into thinking that key person cover is more complicated than it is. In fact, the concept is a rather simple one.

Key person insurance essentially acts as a life assurance and critical illness cover policy that can be taken out as a safeguard against an important employee’s absence from your business and the resultant financial fallout, when this is due to death, disability, or illness. As the policy is owned and paid for by the employer, it is this individual – and therefore the enterprise itself – that is compensated in the event of such a loss.

This compensation typically comes in the form of a lump sum. While there is often a R100,000 minimum payout threshold, there is generally no limit to the amount of cover you can apply for. The result is that you should be able to find a policy that would fully compensate you if the worst happened and you lost your key employee.

Why would I need key person insurance?

We’ve already explained the purpose of key person insurance, but perhaps you’re questioning whether or not it is really necessary for your business. While this must be decided on the basis of your individual circumstances, we would argue that any enterprise with an employee or employees who are vital to income generation should seriously consider it.

This is because the loss of such a person from your business can have a severe impact on your annual turnover. Depending upon the specific role of the individual, results could include anything from loss of sales through to decreasing profits and an increased workload for remaining staff, all of which can have a devastating long-term effect on your enterprise.

In such an event, it can be the case that what’s needed to keep a business afloat while it finds its feet again is a lump sum cash injection, and this is what key person business insurance can provide. Giving you breathing space to recover, it can be used to replace your lost profits until you’re able to find or hire a replacement, giving you the lifeline you need to stay afloat.

How can I get cheap key person insurance?

While key person insurance can act as a vital safeguard against future tragedy, some businesses find that the cost is prohibitive. If you’re among them, don’t despair. Thanks to the many different providers that are out there, the industry is a competitive one, and cheap business insurance is most certainly available.

The best way to find it is through comparison sites like ours, which show you a variety of options as well as details of what each individual policy includes. This makes it eminently easy to find the ideal insurance for your company.

Want to compare business insurance to discover the best cover for your enterprise? Then use our handy tools and features today to make finding the perfect policy a simple and straightforward process.

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