Businesses are leaving themselves open to collapse

According to recent figures, only five to 10 per cent of businesses protect their most valuable employees with key person insurance, instead deciding to risk the worst not happening to both themselves and their employees.
In the UK, one in three people develop cancer during their lives, someone has a heart attack every two minutes, on average somebody has a stroke every 5 minutes and 2.6 million people suffer with heart and circulatory disease.
Michael Wall, financial planning consultant at Mitchell Charlesworth, said: “The 4.5 million small to medium businesses in the UK are most at risk if they do not put appropriate business protection in place.
“For example if the owner of a successful business died suddenly and no insurances were in place, the surviving owners would undoubtedly struggle to afford to buy the deceased’s share of the business outright. The survivors could then find themselves in a position where an outsider, with no knowledge about the vision or ethos of the business could buy into or inherit it and change its path forever.
“The worst case scenario, if the shareholder did not want to include anybody else in the business, would be a complete collapse of the business which would ultimately leave employees with no jobs and an owner with no business.
“Additionally, if a key employee was to die suddenly or suffer a serious illness or injury and were unable to work, the financial impact on a business could be huge. Key person insurance is simply a business insuring those individuals against that risk and provides a lump sum to the employer to recruit and train a person to their predecessor’s standards. Thus in its most basic sense key person insurance is loss of profit insurance.”
Factors that have to be taken into account in estimating the cover needed include the profits that will be lost, if the services of the key individual are no longer available, the expected cost of recruiting and training a new person and the length of time before that replacement is likely to be fully established.