Unfortunately, the former is something that companies have to come to terms with, but risk of the latter can be minimised.


Businesses need to think about how the loss of a key person could affect them and then look at insuring the business against financial losses that would arise from the death or extended incapacity of that person.


Death is obviously the main risk, but it is also important to consider that serious illness can also be a big risk, and create even larger liabilities over the longer term.


Following a death, at least the scale of the problem is known immediately, and succession plans can be put in motion. But with a serious or long term illness businesses often feel an obligation to provide for the person affected, particularly if they are a founder or major equity holder.


In this situation, businesses face the same shock to profitability/costs of replacement squeeze as with a key person’s death with the added pressure of funding continuing payments to the individual, generally for an uncertain period.


The key questions employers need to ask themselves here are, what their plans would be in the event of the long term illness of a senior staff member, what the formal sick pay arrangements are and, most importantly, is there a mechanism in place to fund this liability?


The benefit of having room to manoeuvre in this difficult situation can be enormous, to have the means to support a senior


member of the team through illness without compromising profitability is a win-win scenario.


It is also important to look at the different parts of the business, because people who may not seem ‘key’ actually are. For example, the loss of equity holders, even those with limited day-to-day involvement in the business, also poses financial risk.


There may be problems with corporate borrowing where personal guarantees are in place or the forced transfer of share ownership can arise and can also be insured against.


Businesses may also get into problems where, although a certain person may not be a key to the business as a whole, they have become irreplaceable on a certain project and the risk of this too can be minimised.


If a particular contract or project depends on the involvement and expertise of an individual and this key person is also the main contact for important customers of the business, short term key person cover is available and should be considered.


It can be taken on a project-by-project basis to minimise the risks and also acts as cover against the risk of the loss of key accounts.


Even if there is no immediate loss of customers or revenue, the company is bound to incur costs which should be covered. For example temporary replacements, advertising, and agency fees, the hiring and training of the replacement and the profitability gap until they are fully up and running.


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