Employee Benefits Insurance for Start-Up Hedge Funds

Employee benefits insurance for hedge funds

Having the right insurance policies in place might not necessarily be top of the to-do list when setting up a hedge fund. This article is part of a 4-part series detailing some of the key risk areas and insurance solutions when setting up a hedge fund.

This article details the importance of employee benefits, a category of insurance focused on the omission in the administration of an employee benefit program.

Employee benefits tend to be overlooked in hedge funds because people focus on the business and less on themselves and their staff members, especially in the early stages of establishing a new hedge fund.

However, the very nature of setting up a hedge fund is stressful. If one of the key partners was taken out of the business because of ill-health, or worse, passed away, the other partners have to understand what impact that would have on the business. Would it fold or would the funding be in place to allow it to continue operating?

Insurance for hedge funds

Understanding Hedge Fund Insurance

This four-part series is reprinted from a Hedgeweek interview of three Willis insurance experts. Read the rest of the series:

  1. Understanding Start-Up Hedge Funds Insurance
  2. Financial Insurance for Start-Up Hedge Funds
  3. Employee Benefits Insurance for Start-Up Hedge Funds (this post)
  4. General Insurance for Start-Up Hedge Funds

“At the basic level, the key piece of insurance to consider is key person insurance, especially if it’s a start-up hedge fund,” stresses Bracken. “This insurance protects the hedge fund if one of the key members of the team falls sick or passes away. It’s vital to consider this insurance as an absolute minimum if you want the business to survive in the event of key individuals no longer being involved.” Other elements an employee benefits package will include:

  • Pension provision
  • Life insurance
  • Income Protection – this is payable in the event of an employee going off long term sick
  • Health care coverage e.g. BUPA
  • Dental cover
  • Critical illness cover
  • Dependants cover

Of course, a three-man start-up hedge fund will not need such an extensive package. It is, though, something that needs to be considered as the business grows and staff numbers increase.

An average employee benefits insurance package will provide employee pension provisions, health care, life insurance and income protection for its staff. For the business partners, key person insurance will be required.

As with the section on financial insurances above, managers will want to know the limits of liability to purchase for employee benefits insurance. How does one determine how high (or low) to go?

It’s fair to say that working at a hedge fund is a well-paid profession and as such staff members will expect to have an above-average benefits package.

“We would advise hedge funds to go for the more generous package as they should be providing benefits commensurate with well-paid individuals. For life insurance we would recommend 4x salary, for income protection we would advise 75 per cent of salary insured, pensions should be 6 to 12 per cent of employer contribution and private health care should apply to both staff members and their families,” says Bracken.

Part 4: General Insurance for Start-Up Hedge Funds

Cathal BrackenCathal Bracken is Business Development Manager in Willis’ Global Employee Benefits practice, where he advises on employee benefits. He joined Willis in 2004 and has over 15 years experience in the employee benefits industry.

Categories: Financial Services | Tags:

Leave a Reply

Your email address will not be published. Required fields are marked *