Risk factor of the key executive

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The Independent Online
SMALL businesses are often dependent on one individual, so it is perhaps surprising that they do not insure themselves against the costs arising from the death or serious illness of a key member of staff, writes Roger Trapp.

Indeed, they are twice as likely to insure items of office furniture as people, according to a survey by Legal & General, the insurance company. Only one in five has some form of key person cover. This means there are about 175,000 small limited companies and partnerships - not including those that would cease trading if the controlling shareholder or senior partner died - with uninsured key people. According to the research, carried out among more than 800 senior directors or managers from small firms, the loss of these individuals would cost each company an average pounds 40,000 in the first year alone.

Small firms were found to be most at risk. One in four with fewer than three workers are likely to lose at least half their annual profit if a key member of staff dies or is unable to work through serious ill health.

A five-year policy paying out pounds 150,000 for a man aged 45 at his next birthday can cost as little as pounds 33. But it is only available if the company can show that the loss of the individual would cause it to lose money. The policies - which can run for less than five years - are often arranged to cover debt, and in some cases are a condition of the loan.

Heather Matthews, marketing controller of L&G, said: 'Some companies think they're fully insured but forget their most important asset. Without proper cover, the death of a key person can easily jeopardise the future of a business and put jobs and investment plans at risk.'