Businesses are only as good as the people who run them.
Quite often a key individual will be crucial to a company’s revenue and the running of operations, so an important question to ask is ‘what would happen if they became critically ill or died?’
Keyman insurance compensates an employer for the financial losses that would be incurred during such an event. Having backup that you can turn to in this kind of situation is essential during these difficult times.
It is easy to rely on the top players in your team as they are typically reliable and consistently deliver. Unfortunately it is also easy not to give much thought to the possibility that fate could deal a blow at any time.
In the event of critical illness or death of an insured key person, what can Keyman insurance cover?
- The recruitment and training costs of replacement staff
- Ongoing expenses while sales and profits recover
- Temporary contractors and consultants
- Loan repayments taken out by the insured key person
With a Keyman policy, the company is a the plan owner and the key person is the life assured
The taxation of a keyman insurance policy is not black and white and can differ between companies but usually, if tax relief has been allowed on the premiums then any proceeds received are treated as trading receipts and charged to corporation tax.
A story where having a backup plan worked
As a reminder of the value of our key players and the importance in having a backup plan should the worse happen, there is a well-known story in the US that illustrates this point well.
In 1999 The Los Angeles Rams were a strong American football team but had never won the Super Bowl, so they decided to take a risk and invest heavily into an unstoppable quarterback called Trent Green.
Expectations were high as they ran out onto the field for a routine preseason game, but hopes were soon to be dashed when Green went down hard with a career-threatening injury that ended his season before it even began.
However during the previous months, the Ram’s coach Dick Vermeil had the foresight to invest into a relatively unknown player called Kurt Warner as backup. Vermeil who hadn't seen Warner play quarterback in a real game famously said, "We will rally around Kurt Warner, and we'll play good football."
But with all the optimism in the world, in the cold light of day, with the team right at the beginning of the season and without their star player, their future was not looking hopeful.
The question of whether or not Vermeil had backed up their star player for a worst case scenario was about to be answered out on the field and in front of millions of supporters worldwide.
Vermeils precautionary measure that had gone unnoticed by nearly everyone up until this point, resulted in their backup player delivering a performance that went on to lead the Rams to their first ever Super Bowl win. The Rams then continued to break astonishing records during the next couple of years in what was to be called the "The Greatest Show on Turf”.
Now you may think that this is one of those stories where the underdog won against all the odds. But what I see is good planning.
The Rams committed large sums of money on a star player, but they also insured themselves against losing him to injury by investing a much smaller amount on a backup player.
However it could also be said that luck was on their side when the newly signed and inexperienced Kurt Warner came through and led them to victory. But whether by luck or design the Rams had invested into a plan b that worked.
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Why have a keyman insurance policy for your business?
A much more reliable plan for a business would be a Keyman insurance policy which as well as compensating financial loses, it will also cover the costs of finding a new team member of equal calibre reducing the pressure on your existing team.
In the event of losing your star player, banks and lenders may lose confidence and the remaining team may start to leave due to the lack of job security and an increased pressure to make up lost revenue.
As the Ram’s coach did, when realising that your team is at the core of everything you do put something in place should you lose one of your key members. Your precaution may go unnoticed at first, but should the worse happen Keyman insurance cover could help you to not only survive but to maintain your high standards during the most difficult of situations.
If you would be interested in a more in-depth look into Keyman insurance please follow the link below.
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