Key person insurance…A story of two tales

John is a 46 year old sales person who is the top revenue producer in the company. In the last five years he’s averaged £1 million in annual sales, which is unheard of in his industry. This is also 55% of the annual revenue of the company.

Scenario One

The company leadership decide not to take key person insurance out on John.

John unfortunately passes away. The business loses over 40% of their revenue. After searching endlessly for the next ‘John’ and spending thousands on recruitment fees they find they need two candidates to hit John’s annual sales.

They spend the next three years recruiting and training two sales managers into John’s position. This impacts significantly on the revenue of the business as sales fall and clients go elsewhere.

As profits fall, the business has to reduce overheads including the redundancy of staff.

Scenario Two

The company leadership are concerned that should something happen to John, making him unable to work, a loss of 55% of their revenue could put a serious strain on their financial position.

They decided they needed to cover three years of the loss to give ample time to find John’s replacement (as it may take more than one person to compensate for his sales record) and get them producing. The firm took advice and chose a value for money plan that covered the risk that the business was taking.

John has a mid-life crisis, decides to take a holiday cliff diving in the Australian outback, and he unfortunately meets his untimely death.

The policy proceeds are paid directly to the business. They ensure the firm can maintain profits while two additional sales people are recruited and trained. They supersede John’s sales meaning the business flourishes and revenues increase.

It could happen to your business…

Although the scenario is humorous, and no doubt you’re thinking that the ‘John’s’ of this world don’t work for your business. Protecting your company with key person insurance does have real value should the unexpected happen to a key member.

Key person insurance policies provide your business with a safety net should key employees die or suffer a long term illness. This method of mitigating risk is typically less expensive than other options. If the key person insurance is on you, as an owner, you are protecting the future of your business, providing a safety net to continue those operations you’ve worked so hard to create.

Our advisers understand this dilemma, should you require additional information or advice, please do not hesitate to phone our office on 01253 874255 or email: mark.oneill@jones-harriscfp.co.uk for an initial, no obligation meeting at our expense.

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