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Why do you need keyman insurance?

Everyone in the current day and age is fully aware that businesses depend entirely on their employees to operate.

This is perhaps even more the case when it comes to startups and newer businesses, where every single individual plays a core role that’s needed to get things off the ground.

While a lot of entrepreneurs will have at some point been concerned about what they’d do if they were to lose one of their key players, not everyone will be aware of the solutions available to help protect against such events. One solution you need to know about is keyman insurance.

What is keyman insurance?

A keyman insurance policy is a form of insurance that’s designed to give financial protection to businesses, in the unfortunate case that they lose an employee who facilitates an important function.

That loss can either be permanent (such as in the case of death or severe disability) or long-term (such as in the case of a chronic illness). The exact details of the policy will differ from business to business, depending on how the business operates and how they choose to define the terms.

Keyman insurance can be invaluable for businesses of all sizes, but it’s perhaps especially beneficial for smaller businesses, which have a heavier reliance on a smaller number of key individuals. Key players can be defined in a number of ways – they may be founders and executives, or they could be employees who carry out an essential role that would be incredibly difficult to replace.

Why might your business need keyman insurance?

Now we know a little more about what keyman insurance actually is, let’s explore how it could benefit your business.

It provides financial protection

Perhaps the most obvious benefit of keyman insurance is that it protects against financial loss. For many businesses, especially those still in their start-up phase, losing a key player can have absolutely devastating effects on the ability of the business to operate. While businesses can help to spread responsibilities a little as they grow to avoid this kind of dependency from occurring, it’s often simply not possible with smaller businesses.

Financial losses of this nature can arise as a result of losing key contacts, losing knowledge about a niche operational area, or a whole host of other reasons, any of which can put the future financial viability of the business in question.

Keyman insurance policies are designed to provide businesses with financial protection to help recover from losses like this. While the details will differ from case to case, the policy will often provide a lump sum that can be used to help with the process of hiring and onboarding a replacement professional, or simply to help cover the operational losses suffered as a result of the loss of the key player.

Reputation damage protection

In addition to leading to financial losses, losing one of the figureheads of a business to illness or death can have a significant impact on the reputation of that brand. Clients and partners will likely lose confidence in their ability to operate going forward without that key player, leading to the business suffering from further losses going forward.

The most important thing you can do to limit these reputational damages is to show that clear, effective action is being taken to replace the lost player. Talent acquisition isn’t cheap, and keyman insurance can help provide the funds needed to find a replacement in as little time as possible. This can be incredibly useful when it comes to showing that the business can weather any kind of storm, ensuring that the organisation continues to operate with minimal reputational damage going forward.

Minimises succession disruption

Losing a key player in a business can be incredibly disruptive in a number of ways. Aside from the financial and external reputational damages, it can also be disruptive to the remaining employees, both in terms of their ability to continue functioning without clear professional direction and in terms of their belief in their employer’s future viability.

Keyman insurance policies can help to limit this kind of disruption in multiple areas, ensuring that the business in question can continue to illustrate clear direction and control moving forward. The sooner a business is able to show its other employees that it’s able to stabilise operations, even in the event of substantial losses, the better, and keyman insurance can limit these kinds of disruptions significantly.

Provides peace of mind

When you’re running a business, you want to have as few distractions as possible from your main business responsibilities. This is especially the case with startups, where there are a million things to think about and a lot of things that you can find to worry about. To top this off, having to constantly worry about losing a founding member to ill health can be energetically taxing, affecting your ability to run your organisation effectively.

In addition to its practical benefits, keyman insurance is a great way of reducing the impact of these kinds of worries, providing business owners with a certain peace of mind. Operating with the knowledge that you’re covered, even in the case that you lose a key player, can make focusing on your day-to-day tasks a whole lot easier. It’s also likely that a sense of confidence will spread to your employees, leading to an improved work environment where people can simply get down to ensuring the success of the business.

This confidence will extend to other areas as well. For example, in many cases, banks will be far more comfortable providing business loans to businesses with keyman insurance policies – it increases the probability that you’ll be able to pay off your outstanding debts, and shows that you’ve thought about what to do in the case that disaster strikes.

Clearly, there’s a lot going for keyman insurance. From the financial benefits to the increased confidence it can provide both you and your fellow colleagues, it’s an investment that many businesses can massively benefit from. As with all insurance policies, many of those benefits won’t be realised until disaster strikes; hopefully it never does, but as always, better safe than sorry.

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Why do you need keyman insurance?

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