Why you should have a contingency plan for loss of staff in place
Having a contingency plan for loss of staff means you and other key shareholders in the business will know the steps to take if a key employee or themselves falls seriously ill or passes away. Owners insure their business premises, machinery and equipment, but it’s just as important to cover the value of key people and subsequently have no contingency plan for the loss of key staff in place.
Most SMEs are insured against sales and operational risks, but business owners sometimes fail to consider the risk of losing key people, including themselves.
Thinking about what will happen after they have passed away or become seriously ill doesn’t come naturally to many business owners. We can help them think about what would happen if they or another key person in their company died or became incapacitated, as this can have a catastrophic impact on their business so therefore strategic contingency planning is needed to aid dealing with the death of an employee.
Reducing risk – key employee insurance
Having a contingency plan for loss of key staff is an important consideration to undertake for any business. There are many ways you can protect your business from unforeseen risks. If a business owner or shareholder dies unexpectedly, their shares may be passed onto family members or other individuals who lack relevant experience.
Shareholder protection ensures that business owners are able to purchase the deceased’s shares, thereby protecting the remaining partners, shareholders and members. It also gives peace of mind that loved ones will be financially secure.
Some people are essential to the running of a business and hard to replace. So taking out key person protection allows a business to mitigate any loss in revenue from their death or incapacity, and offset any extra costs. This lump sum payment allows the business to continue without financial disadvantage until a suitable replacement is found.
Another risk worth considering is that when someone who has guaranteed a business loan dies, the funds may be recalled by the lender. But with loan protection, the business can pay off any outstanding loans following the death or illness of covered individuals during the policy term, so it may be worth seeing if this cover would be of benefit to your business.
Protection as an executive benefit
Another form of protection worth looking at as part of your contingency plan for loss of staff, is relevant life insurance, which provides individual death-in-service benefits to directors and senior employees.
This form of protection can be a useful incentive to retain or attract your top staff. The premiums are paid by the business and can be offset as a business expense, providing tax advantages for both the employer and employee.
A contingency plan for loss of staff, how Haines Watts can help
Having key employee insurance and a contingency plan for loss of staff can be crucial when unfortunate circumstances strike a company. At Haines Watts we can help you think about the consequences of the sudden loss of a key member of your business and can provide advice around business continuity planning. For more information, find your local Haines Watts office.
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