Adelaide-based risk insurance specialist, Peter Moyle, outlines how advisers can help their SME clients identify who in their business should be considered for key person insurance cover.
According to Mr Moyle, whose Integrated Financial practice specialises in business insurance, a key person in any business is someone whose
death, disablement or critical illness could have the following adverse economic impact on the business:
- The disruption to the normal day to day operations of the business
- The loss of a very important specialised skill
- The company’s credit rating could be impaired
- The ability to secure financing is jeopardized
- A significant project could be halted or delayed
- The business may need to incur debt or redeem stock in order to meet a financial obligation or pay a benefit
Mr Moyle outlined these details as part of a broader warning that while optimism is returning to the business community following the worst effects of the Global Financial Crisis, this optimism may evaporate very quickly if tens of thousands of SME business owners in Australia were to realistically assess their vulnerability and the consequences the loss of an uninsured key person may have.
… the very asset that produces the business wealth – is so often disregarded
“Business owners, with little hesitation, will install antivirus software to protect their IT; they will insure plant, buildings and equipment against damage or loss as the result of fire or vandalism; engage the services of security companies to safeguard premises after hours – and yet the human asset – the very asset that produces the business wealth – is so often disregarded and overlooked with potentially tragic consequences for the business,” said Mr Moyle.
Mr Moyle outlined the alternatives to key person insurance, such as the use of savings, borrowings or selling of assets, pointing out that these options may or may not be available to the business owner to fund the unforeseen financial contingency:
“However, all these options are costly and some may simply not be feasible or practical. Key Person protection offers a far less expensive alternative –
and most importantly, financial peace of mind!” concluded Mr Moyle.
