For many business owners, the biggest threat to financial security isn’t always the market, the competition or even the broader economy.
It’s the risk of losing the one person whose absence could destabilise everything. It is a scenario that many businesses owners dread, but it does happen all too often and many businesses aren’t protected.
Research by Legal & General suggests that 59 per cent of SMEs would fail within a year if they lost a key individual, yet only 12 per cent have taken out key person protection.
That leaves thousands of businesses exposed, not just operationally but financially.
Protecting the business
Key person insurance provides a financial buffer if someone central to your company’s success dies or becomes too ill to work.
That might be a CEO, CFO, managing director, lead developer or head of sales. Anyone whose contribution is hard to replace should be covered.
Once you have protection in place, the payout goes directly to the business, helping to:
- Offset lost profits
- Reassure lenders and suppliers
- Fund recruitment and training for a replacement
- Stabilise operations during a difficult transition
In short, it buys you time to keep the business going when it matters most. Having lived through one seemingly never-ending crisis in the last few years, it really is a smart decision to have some protection in place.
Protecting the individual
However, resilience isn’t just about the company and its finances. For many owners and directors, the business is their livelihood.
That’s where income protection insurance plays a vital role. If illness or injury prevents you from working, income protection ensures you continue to receive a regular income.
It covers personal bills, mortgage payments and household expenses, giving you peace of mind while the business navigates its own challenges.
There are a wide range of income protection products on the market, each tailored to an individual’s unique circumstances, so it is best to seek advice from an independent financial adviser.
Together, income protection and key person insurance form a joined-up safety net: the business has the cashflow to cope, and the individual’s finances remain secure.
Protect yourself and your business’s finances
Whether it’s protecting your business or safeguarding your personal finances, resilience doesn’t happen by accident.
It takes time to plan, so if you don’t have any protections in place or haven’t reviewed them in a while, now is the time to review your cover, identify the gaps and put policies in place.