Home/Business protection/Key Person Insurance
Business protectionIf the business depends on one person.
Key person cover pays the business itself if someone it cannot easily replace dies or becomes seriously ill. The money buys the company time to recover, recruit and reassure the people it owes money to.
What it is actually for
This is not cover for the person's family. It is cover for the trading position of the business while it absorbs a serious loss.
- Who is covered
- A named individual the business relies on
- Who is paid
- The company
- What it is for
- Lost profit, recruitment, reassuring lenders
- Cover type
- Life cover, critical illness, or both
Identifying the key people
Not always the owner. It might be the one salesperson who holds the client relationships, or the technician nobody else can replace quickly.
Sizing the cover
Commonly a multiple of profit, or the cost of recruiting and training a replacement plus the profit lost while the seat is empty.
What lenders think
Business borrowing is often conditional on the person who signed for it. Cover can be the thing that stops a facility being pulled.
How we arrange it
Work out who the business could not absorb losing
Usually a short list. Be honest about it rather than diplomatic.
Agree how much and for how long
Long enough to recruit and get somebody productive, which is generally longer than people first assume.
The company owns and pays for the policy
The business is both the applicant and the beneficiary, which is what separates this from personal cover.
Review it as the business changes
A figure set when you turned over a quarter of a million stops being right at a million.
Key Person Insurance, answered
- Who counts as a key person? Anyone whose absence would materially hit profit. Owners and directors usually, but also a lead salesperson, a technical specialist or the person who holds the key supplier relationships.
- How much cover do we need? There is no single formula. A multiple of gross profit is a common starting point, as is the cost of recruiting and covering the role until a replacement is productive.
- Is the payout taxable? It depends on who is covered, what the money is for and how the policy is arranged. This is a question for your accountant before the policy is set up rather than after.
- Can it include critical illness? Yes, and often it should. A serious illness can take a key person out for a year or more, which hits the business in much the same way.
- What if the key person leaves? The cover no longer serves its purpose. It can usually be cancelled, or in some cases reassigned. Tell us when it happens.
Not the family. The company receives the money and uses it to keep trading.
Most owners have insured the premises and the vans and never insured the person the whole thing runs on.
Request assistancePeople asking about this usually ask about these
Ask us about key person insurance
Tell us where you are up to and an adviser will come back to you. The answers below just save us a phone call working it out.
- One of the five advisers on Eastfield Road, not a call centre.
- Usually the same working day.
- No obligation, and nothing to sign at the end of it.
Would rather talk now? Call 01733 602 033.
Who could you not replace?
If a name came to mind immediately, that is the conversation to have.