Does your business have an Andy Murray?

Elsewhere there are continued rumblings as to whether Apple will ever again reach the heights achieved under Steve Jobs and in South Africa, with Nelson Mandela seemingly entering the final stages of his life there is the fear of social unrest once he dies, with the former President described as “the glue that is holding the country together,” despite being inactive in political life for many years.

These may be extreme examples of the power of one individual, but most businesses have a reliance on key staff and their loss can be costly or at worse cripple a business.

The stats are stark. Research by an actuarial organisation shows that for a group of 5 directors aged 45, the risk of one dying before they reach 65 is 27% and the risk of one having a critical illness is 80%.

Reliance on staff may be in the form of income generation, key client contacts or management of systems and processes and will not necessarily be the business owner or a director, there can be significant reliance on managers, sales staff, designers etc.

In the current economic climate, you may feel that finding replacement staff will not be an issue, but many business sectors have skill shortages, it may take time and that assumes replacement is possible. Valuable client relationships or specialist knowledge may be lost forever.

If you run a business you need to have plans to deal with the permanent or prolonged absence of key staff and if it is likely to be difficult or costly then consider insurance.

There are a number of insurance options available, many of which are inexpensive, so it is surprising that so many companies decide not insure what can be their main asset. Personal Accident covers can deal with both permanent and temporary disablement at a relatively modest cost, but only pays out following an accident and one of the most cost effective options is Keyman Life Assurance that provides a lump sum in the event of death.

Premiums for Keyman are based on a number of factors including age and sex and to provide a lump sum payment of £100,000 for a non-smoking 40 year old man can start from as little £10 per month. Critical illness options are also available.

Deciding on the amount of cover is not a precise art and there are various ways of assessing an appropriate figure from calculating possible loss of income, a proportion of profits, the cost of recruitment and temporary staff or using a multiple of salary.

As with everything you get what you pay for, so don’t just look at the cheapest option. Policies are usually arranged for a 5 year period, but it is worth considering paying a little extra to have the option to automatically renew after 5 years without additional medical underwriting.

Finally, you will also need to consider the tax implications. Generally if the premiums are tax deductible, the proceeds of a claim will not be, but it is best to check out your company’s individual circumstances.

If you have not already done so, taking the time to consider this risk to your business is essential, especially when a cost effective solution is usually readily available and as always, take advice from your insurance broker.