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Protecting your organization against the loss of key people from Covid-19 Coronavirus

Published on: 28 July 2020 by Michael Lamb

With the reemergence of the Covid-19 Coronavirus, and the reinstatement of strict quarantine protocols, businesses once again need to be thinking about their exposure to the virus. While we have, during the previous outbreak wave, talked about Employees’ Compensation, Cyber Risks, Professional Indemnity and Public Liability, and even health insurance, we have not looked at one core business risk – the loss of a key man, vital employee, or critical employee because of the virus.

Keyman Life Insurance and Covid-19

The loss of a critical employee (or “key man”) is a catastrophe to any business at the best of times. Throw in the background uncertainty of a global healthcare crisis and a shifting local social landscape, and the loss of a key person in the current climate would be devastating.

Key Man life insurance (also known as Key Person life insurance) is a form of life insurance which provides a benefit to a business should a critical member of staff die or otherwise be incapacitated and unable to perform their job duties. The other major differences between key person life insurance and standard life insurance products can be seen in the fact that Keyman products are directly tied to the employment of the individual whose life is being insured, and that the company (not an individual) receives the benefit paid in a claimable event.

Rather than being tied to a specific term, Keyman life insurance is generally bound to the insured life’s employment at the business. Should the employee leave the company then the insurance ends. It should also be noted that Keyman life insurance is not an indemnity product, instead this type of insurance provides a lump sum benefit to a company should the organization lose a vital employee. That benefit can then be used by the business to replace the employee with an outside hire, train an internal staff member to replace that employee, or otherwise cover the financial shortfalls left by the key worker’s absence.

Key-person life insurance is normally taken out on key and critical employees. This would include most members of the C-suite, including the CEO, COO, CFO, and CTO. Essential department managers, regional manager and directors, named partners in a firm (including law firms), project leads for critical projects, and all individual possessing vital operational knowledge of the organization would be good candidates for a company to protect via a Keyman life insurance plan. Simply put, businesses should be considering a Key man life insurance policy for any employee whose absence would negatively impact the overall performance of the organization.

This is ever more important in light of the global Covid-19 Coronavirus pandemic. Especially with regards to the many waves of the virus we can now expect to see. Given that senior staff at businesses tend to be older, and more at risk for severe complications of the Covid-19 Coronavirus, the pandemic presents a major risk to operational continuity should these key individuals become seriously sick due to Covid.

In addition to this, not only do businesses face the loss of knowledge, expertise, and revenue generating potential because they lose a vital employee to the Covid-19 Coronavirus but there is also the possibility of the far more complicated issue of the equity held by these individuals; or even the possibility of outside interference should the departed individual’s shares be passed to someone else.

Covid-19 Coronavirus and Shareholder Protection Insurance

Keyman life insurance provides a lump sum for a business to recover from the loss of a critical staff member. One of the things that this money can be used for is the purchase of equity held by the critical employee who has passed away. In some cases, policies may also allow the company a benefit to purchase shares held by key workers in the event that the employee is critically ill, and not deceased.

In the worst-case scenario of a small business which has just experienced the death of a founding partner due to the Covid-19 coronavirus a Keyman Life Insurance policy with Shareholder protection rider would allow the business options to navigate the highly detrimental crisis they are experiencing. By providing the ability to buy back the deceased (or critically ill) individual’s shares, the business is able to ensure that the decision making process involved in actually running the business is maintained in-house, and that the reward of the hard work done in the future will go to those who need it.

The worker/shareholder, or their loved ones, gets paid for the value of their shares and is able to use that financial settlement to maintain their lifestyle in a time of grief. Many businesses are unaware of this type of facility, and its importance in helping the company to efficiently and effectively navigate their way out of a crisis involving the loss of a vital worker.

The reason for the importance of Shareholder Protection Insurance is that many companies may not have the money to buy back shares from a key worker who is unable to perform their job. This is especially true in the current economic climate presented by the Covid-19 Coronavirus, where every cent business have is being put toward mere survival. With budgets being slashed across the board, redundancies occurring in every industry and vertical, and cost cutting the order of the day, businesses already have their hands full and bank accounts stretched. Should the very real and tragic scenario of an employee being lost because of the virus occur, the likelihood of their being any free cash to make the necessary moves is low.

That is, if there isn’t a Keyman Life Insurance policy or Shareholder Protection Insurance plan in place.

Your Employees Matter to Your Business

There is a reason that the primary type of insurance we’ve talked about in this article is “Key” worker insurance. This is because your employees are critical to the success of your business. Without them, you probably wouldn’t be where you are today.

In 2020 there is a very real risk that someone you know has either caught, or will catch, the Covid-19 coronavirus. One of these people could be your employee. Unfortunately, due to the nature of the disease, they may die, they may require long term medical care and never fully recover, or they could be asymptomatic and catch the virus but never know it. There are so many possibilities and outcomes that trying to predict them all, and how they impact your business, is nigh on impossible. But insurance can help make a start, and a good place to begin is by protecting the employees, shareholders, and critical workers which matter most to your business through a Key man life insurance policy or Shareholder protection insurance plan.



Author: Michael Lamb

Michael Lamb is an insurance industry professional with many years of experience within the Hong Kong Insurance market. Focusing on APAC coverage issues, Michael is able to provide extensive analysis and insight to a range of pressing topics. Previously, Michael provided insurance broker Globalsurance.com with their most highly valued articles and was a key influence in the development of all the content on Pacificprime.com, Michael has a passion for insurance matched by few others in the region.

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