Key Person Insurance could safeguard your charity’s future against the unexpected loss of a fundamentally important employee.
Introduction
Your workforce is the backbone of your organisation. This is especially true for the employees that are essential to its functionality. An unexpected accident, critical illness, or even death, could be detrimental to the day-to-day activities that allow your charity to succeed.
Key Person Insurance could be a potential lifeline in such circumstances. For a monthly fee (that is often less than you think), you can safeguard your organisation’s future and ensure that its work continues uninterrupted.
What is Key Person Insurance?
Firstly, who counts as a Key Person? The obvious answers are your leaders and managers, but the term can apply to anyone in a pivotal role. For example: your main fundraiser.
Our expert team will take the time to get to know your organisation. We can help you quantify the contribution of certain employees so that you can make informed decisions on how best to protect your charity.
Key Person Insurance focuses on the economic impact of losing key personnel through death or serious illness and can provide your organisation with a cash lump sum when it needs it most.
Why is Key Person Insurance so important?
Many non-profit organisations are finding the current economic environment difficult. The cost-of-living crisis has impacted donations while increasing the number of people who need help. The sudden loss of a Key Person can lead to significant financial challenges for your organisation.
A Key Person may be the driving force behind major donation campaigns or oversee relationships with influential donors. Delaying or cancelling projects can be costly as well. The costs of recruiting and training a successor, especially if their skills are specialised and hard to find, could strain your budget. Not only this but those who rely on you could be left without support.
The benefits of Key Person Insurance
With Key Person Insurance in place, you gain access to several crucial benefits:
- a financial safety net – the compensation helps to cover immediate needs such as hiring temporary or replacement staff and training existing employees to fill the gap.
- Continuing your operations – you can use the lump sum to maintain services without disruption. This means that projects can keep moving forward and your charity can keep meeting its commitments to its beneficiaries.
- Strategic confidence – by mitigating this risk, your organisation can make decisions with more confidence. It can focus on long-term objectives instead of short-term financial crises.
- Flexibility – the payout can be used flexibly depending on your charity’s most pressing needs. This can be recruitment, bridging funding gaps, or investing in technology to compensate for the lost Key Person’s expertise.
How much cover do you need?
The appropriate level of Key Person Insurance coverage depends on your organisation, its objectives, and its circumstances. As an estimate, you could consider:
- a multiple of the Key Person’s earnings;
- a proportion of either gross or net profit (directly influenced by the Key Person); or,
- the amount of outstanding liabilities that would need to be repaid on the death of a Key Person.
Moreover, you should evaluate how quickly you would need the payout and which insurance provider is the best fit for the organisation. The tax treatment of premiums and benefits can be complicated as well so seek professional advice to ensure that you are getting the best out of your arrangements
How can we help you?
As the non-profit sector continues to face challenges, Key Person Insurance is becoming increasingly important.
As experienced financial planners we can guide you through the process with access to the whole of market to find the right solutions for your organisation.
Why not secure the safety of your charity’s future and get in touch with one of our team?
If you wish to discuss your options, or review your existing arrangements, please contact us. We provide a 10 per cent discount on our initial fees for members of NCVO.
To arrange an initial no cost, no obligation, consultation, then please fill out the contact form below. Alternatively, you can call 01603 706 820 or email info@lffp.co.uk.
Important information
This is solely for informational purposes and nothing in it is intended to constitute advice or a recommendation. You should not make any investment decisions based on this content. The value of investments can fall as well as rise and you may not get back the amount you originally invested.
While considerable care has been taken to ensure this information is accurate and up-to-date, no warranty is given as to its accuracy. This article constitutes a financial promotion.
