In the UK, there are around 1 million start-up enterprises and medium-sized businesses run by women.
Some of these women started with just a few hundred pounds and have built successful businesses worth tens of millions of pounds now.
However, one potential pitfall which should be addressed is the fact that many female entrepreneurs do not have sufficient safeguards in place to ensure the continuity of their enterprises should anything happen to them, as many of these business are still primarily driven by their founders; occupying the key role in strategy, planning and decisions which drive the growth of their business ideas.
The need to ensure that such a key role is protected makes sense from various perspectives; those of stakeholders and employees being just two examples. One solution to this is key person insurance. This is designed to protect the enterprise from the loss of its founder or other key individuals on which the business depends for its existence.
How does key person insurance work?
The company pays for a life insurance policy for the key person. Should the person in question die, the business will be the beneficiary of the insurance policy. So why is this so important for women leading small and medium, sized businesses? Because in such cases, the death of the key person in the business can actually lead to the death of the company itself, as often the key person is the anchor which holds everything together.
The proceeds from the key person insurance can help the business overcome the immediate loss and survive until a suitable person can be found to continue with the business, or return money to financial stakeholders, fund employee severance pay and wind the business up rather than being faced with bankruptcy.
Who needs key person insurance?
The easy way to approach this is to simply consider who in the business is irreplaceable – if they were not there next week, whose absence would cause serious problems for the continuity of the business. This person is often, but not exclusively, the founder of the business, although there may be other key individuals without whom the business would immediately flounder because of the crucial level of their input.
How much key person insurance is advisable?
This will depend greatly on the size of your business. Start by estimating the immediate amount the business would need in order to survive while a replacement is found, allowing time for them to find their feet within the business, and then continue with it. Alternatively, you could calculate the amount of money invested in the business which would have to be returned to investors, and sufficient finances for an orderly wind up of the company.
As with any business decision, it makes good sense to seek expert advice from a broker such as www.mykeymaninsurance.com who can provide various quotes to demonstrate the costs involved and provide case-specific advice based on your particular business structure and circumstances.