Every member of staff in our company is important, however there are some whose absence would mean that day to day operations would stop. These people are often the cause of a business taking out key person life insurance, also known as “key man insurance”.
Maybe this person as a special skill set that you cannot easily replicate or perhaps they are an early executive with a vast amount of skill and knowledge. Whilst someone may be able to cover these people during an emergency, you would experience a significant impact on your sales and service without them.
Key person insurance is useful for these types of businesses, however, if you are not sure whether it is right for you, we have put together the top reasons why we think you should be organizing a policy for your key person.
Some companies have a trade secret that is only entrusted to a particular number of people. This could be because your industry is particularly competitive or that you are waiting for a patent to protect it. Alongside this, many companies will have made some borrowing in order to develop their “secret product”.
What if something were to happen to that person and you were unable to deliver the product, unable to pay back the money that was borrowed? What would you do then?
By taking out key person insurance you are likely to have enough funds in order to pay off your debt. Whilst the idea may not come to fruition, at least you won’t be left with crippling debt.
Training new employees
There is a good chance that your business will have special employees who have a particular skill set. It can be costly to train other employees on these skills and means that these people become a key role in the day to day operation of your business.
If anything happens to this person, such as they die or become unable to work, then the day to day operation of your business would stop. The only way to rectify this is to recruit and train capable people who can continue this work. A key person insurance policy will be able to give you the funds to do this, and help you to get back to normal operational speed as soon as possible.
Improve your chances of getting VC Financing
If you are looking at securing venture capitalist financing, then you may find that a key person life insurance policy can help improve your chances. This is because this type of policy will convince the VC company than their investment is safe, no matter what happens within your business.
A great way to show your employees that you feel that they are vital to your success is to take out a key life insurance policy for them. You never know, this morale boost may just spread out around your business, to other employees who are not part of the protection policy. It is not only acknowledging their importance, but also shows other staff that you have a contingency plan should anything go wrong.
It is flexible and you are not tied in long term
One of the things that concerns companies looking to organise a key person insurance policy is that the person concerned leaves the company. After all, the last thing you will want when you lose someone important to your business, is then to continue to make payments on a policy that relates to them.
With this in mind, key person insurance has become more flexible, and if you need to you can change or cancel your premiums at any point.
It is tax-free
If you take a look at the Income Tax Act Section 37 (1) then you will find that any company who has purchased keyman insurance for a particular employee may be able to claim a tax deduction to any premium payments made as a business expense. This is a huge benefit to any employer.
These are just some of the reasons why we believe that Key Person Insurance is a great idea for your business. No matter who it is that you want to protect, and no matter what they mean to your business. A policy will not only give you peace of mind, but will make sure that your business can continue to be the success that you have worked so hard for it to be!