How to Protect Your Business Against the Loss of a Key Employee?

Article by UK Insurance Index
Article added: 4/4/2005 - Last updated: -
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Business Protection gives your business financial help if the staff covered are affected by death, terminal or critical illness, or permanent disability during a benefit term.

Every business has certain key personnel who are vital to its success and prosperity. It might be the sales director, or it might be a specialist craftsman. Every business is different, but most directors will know which staff members are vital to prosperity.

However, the damage caused by the prolonged absence of someone on whom a large part of the business depends is often underestimated or not even considered.

Key Person Insurance
Key person protection can cover one or two nominated individuals, who can be a partner or an employee. If they die or are diagnosed with a terminal or critical illness, the policy will pay a lump sum either on death or shortly after the diagnosis of a disease. Some policies will pay a regular income if they are absent from work for a long time.

Unforeseen Events
If a partner in a business dies, there may be other problems. Apart from their loss to everyday business activity, there may be imperative reasons to buy out their shareholding so that it does not pass to outside investors who do not share the vision of the company's future. Such unforeseen events can lead to crises, reduced revenues and even, in some cases, business collapse.

Protect Your Business
Business Protection is designed to protect your business in circumstances like these. You can choose the benefits you need and tailor them with additional features, such as waiver of premium during periods of incapacity, the choice of fixed or renewable terms and having index-linked benefits so that they stay in line with increases in inflation. In addition, you can change your benefits as your business needs change.

Business Protection covers the individual people you nominate in your policy or policies. If one of these people dies, is diagnosed with a terminal or critical illness the benefits are paid as follows:

For life cover and critical illness protection, a lump sum is paid on death or after diagnosis of one of the specified illness.

For business loan protection, a lump sum is also paid. However, this reduces to nil over the course of the policy (so, for a policy with benefits of £50,000 over 10 years, the benefit payable would reduce by £5,000 each year).

What Can Benefits Be Used For?
Funds provided by business protection insurance policies can be used to:

fund a permanent or temporary replacement
tide the business over a period of reduced activity
contribute to medical care to speed recovery
repay an outstanding loan

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PLEASE NOTE: The guidance published in this article is for information only and does not constitute financial advice or a recommendation of any particular product or company. If you are in any doubt please consult an independent insurance adviser. A database of advisers in your area is available at www.unbiased.co.uk

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