Most businesses spend large amounts of money insuring their plant, stock and machinery. However, as most people know, an organisation’s greatest asset, is actually its people. Your staff, as managerial assets in the business, provide equal or greater value to the company value than ‘book’ assets.
As people are the resource that make the most profit, losing them can create a huge human capital risk. The death or permanent disability of a key person therefore, can have a significant impact upon the continued success of a business.
The Business Impacts
A range of impacts can occur to the business as a result of losing key staff including:
• Major financial loss
• Inability to replace the specialised expertise lost
• Loss of training, company culture or ‘know how’
• Unfinished business, research or contracts with delays in delivery and loss of profitas a result
• Loss of credit approval
• Competitors taking advantage of the issues being experienced to snatch market share
• Loss of confidence of other employees in the management/ team
• Increased costs to attract a suitably qualified replacement
Protecting the business
There are two common purposes for key person insurance:
1. Protect profit or revenue stream
In the event of the death or disablement of a key person, cash is received, which can cushion loss of profitability until a suitablereplacement can be found. This ensures that revenue streams are not jeopardised by extended under-resourcing.
2. Protect external indebtedness or funding
Funding is regarded as a scarce resource and is usually finitely allocated to a business enterprise. Sudden and unplanned expenses, or a prolonged disruption, can place significant strain on the allocation of funding. Projects may have to be discontinued and staff reallocated with the resulting stress from makeshift provisions.
Disclaimer: The information contained in this website provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.