Does Your Small Business Need Key Person Insurance?

30 August 2016 by Elijah Steward

How would your business cope if the key person running it fell critically ill or died? What would you and your employees do? Key person insurance can help to protect in this instance, but do you really need it? Here's a look at how key person insurance will help your small business to help you decide.

What Would You Do?

Go back to that first question and answer it honestly. What would you do if something happened to the key person in your business? This key person could be the company owner, one of the founding members, or a very important employee. Either way, if they handle all the day-to-day running of the business and make major decisions, the business could fall into financial problems.

Getting key person insurance will offer some protection. The business will be able to use the insurance payout to cover expenses while a new key person is found.

Is There Anyone Else Who Depends on the Business?

Consider just how many people are part of the business. Will anyone else be affected by the death of the key person? When working as a sole trader, there are chances that it doesn't matter if the business closes down after your death. The only time it would matter is if you had a family to support, but then you would need life insurance and not key person insurance.

When nobody else is affected, there's no point spending the extra money. The only time you really want to consider it is if there is a risk of other people losing their jobs due to the company closing.

Is Everyone Easily Replaceable?

Now, look at every person within the company. Is there anyone who could leave the business in financial problems through their death? Even the business owner may have passed on or trained someone else all the duties required to keep the business running. When there isn't one specific person, it is possible that there won't be financial problems through the death of someone. This would mean there's no immediate need for key person insurance.

Remember that this isn't just about financial problems. You'll need to consider the workload on other staff members. If it would take months to find a suitable replacement and take the extra strain from staff members, it may be worth considering the insurance.

In the end, it depends on your company structure. If you are a sole trader, there are chances that key person insurance isn't a requirement. If you, however, are the founder of a small business with employees, you'll need to consider what could happen to your business in the event in pass away or become ill.

Fore more information about business insurance and what your company needs, talk with your insurance company. 

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