Management expertise, experience and contacts are often the most important assets of a business. it is the difference in the quality of management expertise that explains why some businesses prosper while others fail.
The Loss of Key Personnel
Statistics show that over 90% of business failures result from management breakdown. In many such cases it is likely that failure results from the sudden loss of key personnel.
In particular the sudden death or serious illness of a key person could give rise to a number of immediate financial pressures for the company:
- the ‘calling in’ of company loans, in particular any to which the ‘key person’ had given a personal guarantee
- a costly interruption in business
- a loss of business contacts
- extra resources may have to be committed to the recruitment and replacement of the key individual.
Keyperson Insurance is life assurance effected by an employer on the life of a key employee, who may also be a shareholder or director, to protect the company against the financial consequences of that individual’s sudden death or serious illness.
Keyperson Insurance is designed to protect the value of the company’s human assets much in the same way as fire insurance protects a company’s physical assets.
Keyperson Insurance can therefore provide an immediate lump sum payment to the company. The company would use these funds in any way it chooses:
- repayment of bank loans, particularly any to which the key individual has given a personal guarantee.
- repayment of any loans the key person may have made to the company.
- recruitment of a successor.
- investment in the business.