What Should Companies Do When They Lose Their Key Performer?

Your business relies greatly on its key team members and valued employees. Protecting the interests of your company and its people is a vital step in ensuring business continuity and steady profits. The Keyman insurance policy is a corporate policy, similar to a Life Insurance plan but one that protects your business interests in case of key man loss due to death or serious illness.

Ask any businessman or entrepreneur what his or her greatest challenges have been in setting up dream projects - You will definitely hear ‘finding the right people’ in the list of top 5 difficulties in establishing a business of any kind. Important human resource like your company PMEs is a vital aspect on which companies and brands are built. Companies spend lot of money on finding and training their workforce to build key team players.

But sometimes, employees who play important roles in our organisations can either pass away unexpectedly, get disabled due to some unfortunate incident or get seriously ill. How can you, as the employer of a key performer, protect the interests of your company and ensure business continuity in events such as these?

This article explains the importance of keyman insurance plans and how they can assist you and your business in times of loss

Losing a Company Director

A company director plays a crucial role in driving a business and making important decisions. Losing one can cause disruptions such as sudden cash flow problems, causing shareholders or clients to demand immediate payments. This can cause undue stress and demotivation among all employees, especially top management.

These are the possible situations that may occur when you lose a director:

Clients lose faith in the company, especially when they have been dealing with the director all this while.
Financial sources such as banks or creditors get insecure and begin to follow up on their loans.
There is a general unrest or worry among employees as they imagine the worst like losing important clients or the company shutting down if there is a loss of a director.
Suppliers begin to request for their payments as they feel that business may get impacted, leading to non payment of their pending cash.

In short, cashflow may get restricted, endangering business relations with various parties.

Losing a Prized Employee

If you lose a key team player like the Head Chef in your Chinese restaurant (guide to F&B business in Singapore); your business can come to a complete standstill till you find a a good enough replacement. And since the restaurant business is a competitive one, by the time you have found a new Chef, it may be too late.

After losing a valued employee, this can occur:

An upset in daily operations causing production to go down
A loss of important clients due to a long recovery period
Bad word of mouth and brand name
Loss in profits
Other employees wanting to leave

Keyman insurance

Keyman insurance is the proactive way to protect your business against resource loss. Though there are many kinds of keyman insurance plans available in the market, the most common one is ‘Profit Protection Insurance’ that in the event of a key employee found unable to work any longer due to death, illness or disability, ensures receiving a cash payment to help cope with the difficult time.

This is especially useful for new start-ups and small sized companies who tend to suffer the most when they lose key organisational people. Payouts can come in very handy during tough times.

For example, if and when an insured employee dies, gets disabled or seriously ill under the keyman insurance scheme worth $1m, the entire money is given in the company’s name ie: the payment is made to the company. This is so that the company can get on with hiring and or training a suitable replacement without suffering daily loss. It can also go a long way to help with issues related to creditors, banks, suppliers and others.

With the extra cash on hand, the employee can take the desired steps in recovering from the situation.

You have time and opportunity to:

Cope with the difficult period of low cash flow
Make required payments to banks and creditors

In other words, with the extra cashflow, many problems can be easily resolved.

Keyman Insurance and a Buy Sell Agreement

Typically, in a partnership arrangement (see this guide for common Singapore business structures), a Keyman insurance plan can be teamed with a Buy and Sell agreement.

This enables a business partner to purchase the shares of another partner in case he or she dies or is physically incapable of fulfilling the partnership role. Keyman insurance, in this case, financially supports the partner who wishes to buy out his/her partner’s stake.

This is a much better solution that to replace the partner with an unknown individual or force the family of the deceased or ill partner to take responsibility on his or her behalf.

Other types of keyman insurance plans:

Categories of keyman insurance plans include Term Insurance, Whole Life Insurance, Investment Linked Insurance, or Endowment Insurance, of which Term Insurance is the cheapest.

Keyman Life Insurance

So, your keyman is unable to perform his or her duties as a main person in your company. Sudden illness has been detected by the doctors and your options are limited. What can you do?

Under normal circumstances, you would need to buy time, reassure your clients, suppliers or bank that things will get back to normal soon. You may lose a lot of money, reputation and even morale among your employees.

The Keyman Life insurance plan is your best bet in this situation. This program can be structured with a life Insurance plan and is a good option for a business set up. The life Insurance can be set up to product a payout upon death or a critically ill keyman or key performer. The main issue that a company can experience is a problem in cashflow. Losing a keyman can cause this. The Keyman insurance plan takes care of this problem by providing ample funds to recover.

It is therefore, a good idea to invest right away in a Keyman Insurance plan that will ensure your company survives unfortunate mishaps and incidents.

Risk ManagementRaymond ChanOctober 23, 2018Risk Management