Farm Ireland
Independent.ie

Tuesday 18 December 2018

The insurance cover that can unlock and protect the value of key staff on the farm

Theresa Murphy

Can you afford to be a man down? Spring has almost arrived and so too has the increased workload that comes with it.

The prospect of taking time off because of illness or incapacity is simply impossible or a source of great fear for many farmers.

This is why it's essential to put in place the type of cover that will reduce worry and anxiety around these issues while providing financial security to the farm.

While many farmers hold core general insurance policies, they may not be covered for occurrences such as illness or disability that may remove them from the day-to-day work on the farm.

Insurance companies like FBD offer additional financial protections including 'keyman' cover, which can help to protect the farmer, dependants and the financial security of the business.

Keyman insurance (also known as business protection) is often overlooked due to the many different policies that farmers will be required to have in the course of a year.

Keyman insurance is designed to financially protect farms from the effects of prolonged illness or even death of staff who are central to the day-to-day operation of the farm, including the farmer himself.

Keyman insurance can't replace people but it can provide cash to buy time and cover the costs of temporary staff, loss of profits or provide a cash injection.

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What to consider

If you decide to purchase Keyman insurance, you should give some thought to who are the 'key people' for the running and success of the farm business.

It may extend beyond the farmer to the farmer's wife/spouse, daughters or sons, or an essential farm employee.

Much like insuring property, you should give consideration to the monetary value of the services that would be lost due to the unavailability of the key person.

There is no real advantage to over-insurance as your premium will likely be higher and typically you will not be able to recover a claim for an amount higher than the actual loss.

Factors to be considered when deciding the value to insure a key person for include their replacement cost, the contribution that the key person made to earnings of the business in previous years, a year's profits and the value of the loss of earnings.

Depending on the level of indebtedness of your farm business, you may be compelled by a lending institution to hold a policy like keyman insurance, which will ensure that even in the worst-case scenario for the farmer, there will be enough money to employ a labour unit to replace the farmer and ensure that mortgage/loan repayments etc are kept up.

Although Keyman insurance sounds akin to life assurance, it is a policy which covers a person who is alive but unable to assume their normal work duties.

COSTS

The cost of keyman coverage will generally vary based on the following factors: the key person's age, gender and health; the business size; the nature of the business; and the value for which the key person is insured.

FBD Insurance estimate the cost of Keyman insurance to be (based on ¤100,000 cover for fixed term of 20 years)

* for farmer aged 30 on next birthday - monthly premium of €10 per month

* for farmer aged 40 on next birthday - monthly premium of ¤11.64 per month

* for farmer aged 50 on next birthday - monthly premium of ¤25.77 per month.

Age profile

While it may seem like an additional bill that many farmers can do without, especially at this time of year, we should be cognisant of the significantly older age profile of Irish farmers and as a result the likelihood of inability to carry out farm work due to illness or disability.

Farm safety campaigns have highlighted time and again the dangerous nature of farms as workplaces and all farmers should investigate personal accident insurance - even if they decide not to have Keyman insurance.

Theresa Murphy is a barrister based in Ardrahan, Co Galway


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