Someone has said it right “It takes more than one to build a successful business”.
Every business has a few employees, who significantly contribute towards the growth and profitability of the business. They may be owners, partners, directors or employees with special skills who manage critical areas of the business. Permanent or temporary loss of such indispensable people due to disability, death, or critical illness can have a devastating impact on the profitability, revenue, goodwill and continuity of the business. An entrepreneur must be careful in making sure that such “key employees” are adequately insured.
What is Key Man Insurance Policy?
A business buys Key Man Insurance policy on behalf of essential people in the organization. It is basically for specific individuals in the company that play a major role in the company’s survival. This policy puts the company as the beneficiary, as well as the entity that pays the premiums. It can minimize the risk of financial losses in case a business loses a vital member of the team, whether through health problems or any other reason.
In the event of a death or disability to a mentioned key employee, the company then has the funds to make appropriate business changes to stay in the business. It can cover debts, day-to-day expenses, or even payments to investors. This policy keeps the business afloat in the event of the death of a key colleague.
Here are 10 reasons why you must opt for Key Man Insurance UAE.
10 Reasons Why Your Business Needs Keyman Insurance
- Protecting Significant Contributors In The Organisation: Key man insurance Dubai provides protection against business risk in the event of the unfortunate death of the key contributors/employees. For instance, there’s a high risk that a company may cease its operations in the event of untimely demise of the business owner.
- Protection of Employees & Suppliers: In a small-scale company, the business of a single owner dies along with the entrepreneur. As a result, employees face an unexpected and uncompensated layoff and the creditors remain unpaid. However, this insurance placed under a trust or with specific instructions in a will can help compensate the employees and pay off the dues to the suppliers and other creditors.
- Mitigating Loss of Revenue & Profits: Untimely death or disability of the key employee can lead to the loss of many key accounts, thus resulting in loss of revenue and profits. It may also affect the business in other ways like, cash flow crisis, failure to deliver goods/services as agreed, inability to pay banks/suppliers or increase in hiring costs. But having an insurance in place can help businesses with the necessary cash flow, until an alternative strategy is planned and established.
- Assistance for Business Loans & Facilities: Most of the banks rely on this insurance for granting a loan or facility. Having such insurance in place makes the loan process easier. Banks obtain a personal guarantee from the partners when granting a loan to the business. In case a business is unable to pay the bank in the event of the death of a partner, the surviving partners need to pool in money from their personal wealth to repay the bank. With Key Man insurance in place, the partners can protect the interests of the lender, business and their personal wealth.
- Improving Chances of Venture Capital Funding: UAE is considered as the fertile ground for various start-ups, particularly in e-commerce and technology. A combination of a sound business plan along with Key Man Insurance GCC provides potential investors with much more confidence and encourages them to invest in new start-ups.
- Buying Shares of the Deceased Partner: To ensure the availability of funds in the event of the death of a partner/director to buy out the share of the business, many entrepreneurs opt for this insurance policy on the lives of all partners. It ensures peace of mind to the surviving partners, as they don’t need to hustle for arranging the necessary funds to buy out the shares of the deceased partner.
- A succession Plan For Family Businesses: Most of the businesses in the UAE are family owned and typically have family members and non-family employees, who are crucial to their continued success. Sudden demise of the owner may lead to issues like renegotiating terms of business with suppliers, renegotiating loans and facilities with bankers or even finding and training a successor within or outside the family. Key man insurance in hand provides the successor with a secure platform to learn, adapt, sustain and grow the business.
- Shows Investors That You Mean Business: Opting for this policy is a part of risk management. It proves to investors that entrepreneurs have the foresight and business acumen to prepare for the future. Also, that the business owner takes all precautionary measures to ensure that the money of the investors won’t be wasted, when they invest in the business.
- Improves Consumer Perception: With this policy, businesses can boost how consumers see their brand. They can set a standard in the industry and show the clients, investors, and competitors that their team will treat them well, if the business takes care of them.
- Funding A Buy-Sell Agreement: Not many people like the idea of replacing their business partners with their partner’s spouse after the demise. Without an appropriate buy/sell agreement and key man insurance, the entrepreneurs may not have a choice.
This may sound callous, but it’s a practical strategy for successful businesses. Accidents and injuries can happen anytime, anywhere, and you have to account for these things to show investors that you are serious about your business. Key Man Insurance UAE for your essential employees can protect your business as well as your workforce.
Asfar is an Independent Financial Advisor and Associate Partner with Continental Group based in Dubai, UAE with over 12 years of experience in the region. His clientele includes high networth individuals, corporations, C suite executives, business owners, and entrepreneurs in the region.
Although with proper planning and consistent effort, you can save, invest and distribute your own finances. It is always good to get some professional advice. If you need help in planning your finances in the short, medium, or long term, I can help you do so. You can write to me with your questions and comments to firstname.lastname@example.org