Keyman Cover

Keyman Cover

The most valuable asset in any business – whether a milk bar or a multi-national corporation – is the key people who run the business.

The loss of the managerial skills, expertise and leadership of a key person can have a substantial impact on revenue and profitability. Considerable costs can be incurred in recruiting and training a suitable replacement. There may also be an adverse impact on the business’s goodwill and its
ability to repay debts or other expenses.

While material assets such as plant and equipment can be replaced relatively easily, this is not the case with human assets. When a person dies, is totally and permanently disabled or suffers a critical illness, they can be lost to the business forever and this can create one or more of the
following problems:

  • Profitability may be adversely affected. There are many businesses operating today at a profit after several years of loss, simply because of the efforts of one person. There are also many well known organisations that have attained success and a reputation, mainly if not solely, through the vision, drive and ability of a key person.
  • Considerable time and money can be spent recruiting and training a replacement. These costs can escalate if there are no suitable candidates available within the organisation and an external person has to be recruited. The business may even incur expenses to relocate a suitable person from interstate or overseas.
  • The momentum and efficient management of the business can be adversely impacted. This can be an even greater issue if the business is in the middle of, or about to embark on, a major expansion program.
  • The goodwill and credit rating of the business may be threatened, as creditors may press for debts to be repaid.
  • To indemnify the business against these (and other) losses, the business should consider using key person insurance.