Home Business News Miss Small's big tips: Have you covered your vital assets?

Miss Small's big tips: Have you covered your vital assets?

30th Dec 11 3:15 pm

Jennifer Lopez has reportedly insured her curves for one billion dollars.

Keith Richards has taken out a policy of two million dollars to cover his hands.

Lopez and Richards are not just celebrities; they are also shrewd business people in their own right.

Recent research by the Institute of Directors and British Chambers of Commerce has revealed that a shocking number of companies in the UK are not protected from the potential impact of losing a key individual or ‘key man’ from their business.

The sudden death of Ved Arya Prakash of Milestone Capital Advisors this August is a prime example of where the unexpected demise of a company’s CEO has had a dramatic impact on the business, and is reported to have caused unrest among investors.

This instance demonstrates the potential danger of a business that revolves around one key individual.

Indeed, many businesses in the UK have not fully recognised the risk they face by not insuring their ‘key man’. The IoD’s findings reveals that the difference between the cover in place held by many businesses and the actual identified risk is a huge £1.1 trillion.

As for celebrities insuring bums, and businesses insuring people, admittedly, this can attract criticism from some who believe that insuring for the loss of certain key individuals is vain and unnecessary.

However, in reality, it is very pragmatic and in a business context it makes complete sense.

Contemplate Mittal steel without Lakshmi Mittal or Topshop without Sir Philip Green. Nonetheless, a shocking amount of business leaders overlook insuring themselves as an asset within their own company. One only has to look at the departure of Steve Jobs, which led to a five per cent drop in Apple’s share price, to see this theory in action.

A business will almost certainly have public liability insurance in place and policies to protect buildings, stock and fleet. However, they rarely consider insuring their MD or CEO – the core leaders within the business that provide its direction.

Calculating key man insurance is complex. It is simple to work out the cost of a car or obtain a quote for a building, but how do you determine the worth of a CEO? This is where a discussion with your insurance broker would be advisable.

In today’s tough economic climate, a lack of key man insurance is leaving businesses in this country vulnerable. In the event of a death or serious illness the cover will provide cash that can be utilised until new management is put in place. The likelihood of a business ever needing this kind of insurance is minimal, however, should your business fall into very bad luck, it could prevent a serious or even fatal setback.

Katie Small, managing director, Mercury West Associates

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