No business can succeed without people; they are the most valuable asset. And within your business, certain key people have a significant impact on your bottom line due to their knowledge, skills, experience or relationships with suppliers or clients.
If they died or were disabled, it could mean the end of your business. Insuring their lives against these events makes business sense. The insurance used for this is known as keyman insurance or key person insurance. Read more: What is keyman insurance?
Here are the reasons why you should consider taking out life cover on the lives of key people in your business.
1. Ensures business continuity
This is an important consideration, particularly for family-owned businesses. If a business 
owner or partner dies without key person insurance, their surviving spouse may be forced to step in and take over the reins. The surviving spouse may lack the necessary skills or motivation to run the business.
If you have key person insurance in place, along with a buy-and-sell agreement for businesses where there is more than one owner, it ensures that the business keeps operating seamlessly.
2. Keeps the business afloat in the short term
If the loss of a key person has a direct impact on revenue, key person insurance will provide cash so that the business can continue to pay employees, suppliers, loan repayments and any other operational costs until the business adjusts to the new reality.
There will also be funds to pay for temporary skills or services, and for finding a replacement for the key person the business lost.
3. Protects against surety complications
Key individuals often sign surety in order to obtain credit for the business. If a key person dies, the debt may need to be settled in order to finalise the deceased’s estate.
If there is life cover in place that will pay out in this eventuality, the business interests and the beneficiaries of the deceased’s estate are safeguarded.
4. Lessens the impact on employees
The loss of a key person can have a negative impact on employee morale due to anxiety around possible job losses or the closure of the business. This, in turn, has an effect on production. There is less uncertainty, and business can continue as usual if employees know that their jobs are safe.
5. Funding requirement
A lender may require key person insurance when approving funding. This ensures the longevity of the business and reduces the risk to the lender that the business may default on the loan.
