Business Clinic: Can I insure against the loss of key staff?

Farmers Weekly’s Business Clinic experts offer free advice on legal, finance, tax, insurance, farm management and land issues.

Here Tim Price, rural affairs specialist at NFU Mutual, offers guidance on how you can insure your business against the loss of key members of staff.

Q: With a high-tech parlour and associated feeding and recording systems in our dairy enterprise, we rely heavily on our dairy unit manager’s skills and experience and would need a highly qualified – and expensive – temporary replacement and recruitment costs for a successor if he was seriously ill or died. I believe insurance is available but am not sure how it would work.

Key person insurance is a type of policy taken by a business to cover financial losses that could arise from the death or extended incapacity of an important team member.

It is widely used in many types of business but less common in agriculture where family members are often relied upon to fill the gap if someone is ill or even dies.

Tim Price, rural affairs specialist, NFU Mutual

However, as agriculture relies more on technology, many farm businesses have an employee who is responsible for key areas, or has skills that are hard to replace.

See also: Am I insured for snow clearing jobs?

Key person insurance can offset costs such as hiring temporary help or recruiting a successor and losses such as a decreased ability to transact business until successors are trained. Such policies cover a fixed specified sum.

This type of insurance typically covers the cost of recruitment for key employees, emergency cover, advertising and other recruitment costs such as agency fees.

Business continuity cover is also a feature of this type of insurance, providing financial support for the business during times of staff transition.

An additional consideration for a business that is a partnership or has shareholders is the impact on the business should they lose a significant investor or partner.

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