Considering taking out keyman insurance for an employee? Here’s what you need to know first
Keyman cover is something every business should consider for their high performing employees or senior executives.
Although the overall success of a business is reliant on everyone in the company, there are usually a few skilled workers, or those with particular expertise who would be a particular loss to the company.
Losing them could lead to a loss of income or profit, a fall in customer confidence, reductions in morale, and additional costs to replace them.
Keyman insurance cover provides some financial security for your business to help protect you and your company in the event of the death of a key employee.
But you’ll have some things to think about when it comes to buying keyman insurance.
Here are the common considerations we advise you to consider.
What defines a key person in your business?
Defining a key employee comes down to the overall value they provide to your business.
They could be a top performing sales person who generates significant revenue, a top executive who has important relationships with key customers, to highly skilled, experienced engineers who develop your products.
When considering your keyman, examine closely the impact losing one of the employees would have.
How many employees can you afford to insure?
Because keyman insurance can provide significant financial resources in the event of an employee’s death, premiums can be more expensive than other types of business insurance or financial protection.
Many keyman insurance policies also outlast their required period so your business may never actually receive any payout from the policy.
With that in mind, be clear on your criteria for a key employee.
How much should you insure them for?
How much you insure a key person for will depend on a few criteria.
The main issue will be your company turnover, and how much your key person contributes to that.
But it can be other factors that they contribute to your company.
What would the loss of this key person mean for the future success of the company?
Also, consider if losing them would force the company to wrap up or if it would continue in their absence.
If you decide to continue, how long would it take for the company to recover?
What we always recommend is to consider the higher level of insurance you can afford. You may pay more in premiums, but it’s better to be fully covered than to find yourself short.
What do you want a payout to cover?
As well as providing financial protection from the loss of revenue and profits by the death of a key worker, keyman insurance can also be used to cover other expenses relating to the loss of an important employee.
This can include payments for any outstanding business loans.
And can also include any recruitment costs you incur trying to replace an employee.
What you’ll use any payouts for will determine how your keyman cover will be taxed, so keep that in mind.
Get the right level of keyman insurance with Rigby Financial
Find out more about keyman insurance and let one of our financial experts help you get the right level of cover to protect your business.Get in touch today to find out more about setting up keyman insurance for your employees.