Many smaller businesses are gambling their future by having no insurance against sickness or death of key staff.
Looking at the evidence, you could be forgiven for assuming that business owners never fall seriously ill or die.
With regards to business financial planning, most companies make sure they have public liability insurance and cover for contents, fire and theft. And one would expect anyone running a small to medium sized enterprise (SME) to recognise that the serious illness or death of a key person would have a potentially devastating effect on the business, not least to its value and profitability.
Many adopting a high risk strategy
Yet almost two thirds (65%) have no protection insurance for their owners and key employees according to Zurich’s SME Risk Index - a quarterly survey measuring the perceived level of business risk faced by SMEs. This is somewhat surprising when you consider 45% of those surveyed highlighted the death or critical illness of key employees as a major risk.
Key Person Insurance
Key Person Insurance, also known as Key Man Insurance, compensates companies for losses incurred due to the extended absence of an important member of the workforce.
As well as covering the loss of profits suffered by the business until a replacement is found, Key Person Insurance can also pay for the costs of recruitment and training of a replacement.
Clearly, when it comes to key people, many SMEs are adopting a high risk strategy by doing absolutely nothing about cover at all and neglecting this important element of business and financial planning. Without question, the consequences of such inaction are potentially dire.
Serious illness not uncommon
Given that serious illness, such as cancer or a heart attack, affects one in four women and one in five men before retirement age*, potential scenarios like these are not uncommon. Yet the problems facing SMEs can be mitigated if right safeguards such as key person insurance are in place.
Seek specialist help
Having the correct protection and ensuring this is regularly reviewed and updated to reflect business changes is a particularly onerous and daunting task for time-hungry entrepreneurs. However, given the critical importance of financial planning for small to medium businesses it is an essential task, one which is best left to a wealth management specialist to help protect the business from a wide range of risks and ensure business owners meet their aims while concentrating on managing their company.
*Source: https://www.criticalillness.org.uk, September 2014
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