Whether you are a small partnership or a large blue chip company, it’s more often than not the people who are key to the company’s success or failure. A business that relies on a technical website or important machinery cannot get far without a talented web developer or machine operator to keep things running smoothly.
With some people being critical to the success of a business, what protection do you have in place if any of your key people die, or becoming seriously ill?
What is Key Man insurance?
Key man, or key person, insurance is a policy which a company can take out on key individuals within their company. The policy is designed to pay out a lump sum of money to the company in the event of death or critical illness of a key person.
This is normally to be used to cover loss of profits, any debts and possibly to take someone else on as replacement. Of course there are a number of different things your company may need to pay for, so all of these factors should be taken into account.
A policy is underwritten very much like a normal life insurance policy, the main difference being that the company owns the policy and will be the beneficiary from any pay out. This mean all premiums are therefore tax deductible.
Who is a key person?
A key person could be anyone in your company, but its normally someone very valuable who would be difficult to replace. Maybe it’s the web developer or the top sales person. Or it could be that your company would not function without the head of finance, or even your technical support manager.
How much cover is needed?
When contemplating how much cover to take out, you should look at the key people and think about how much that person contributes to the company’s profits. What would you need to pay for a replacement whether, that’s permanent or temporary? Has your company got debts, rent or stock that needs to be paid for every month? All these potential costs need to be taken into account.
What are the different types of cover?
Key man insurance can be taken out as a life only, a life and critical illness, or a critical illness only policy. Sometimes companies only want to be paid out if a key person dies, but overwhelmingly companies take out a life and critical illness policy as an illness can be just as detrimental as death when looking at the financial impact on a business.
For example, if your key person was to suffer a stroke, they may never come back to work. It is also much more likely that people will suffer a critical illness than die, so it’s definitely something you should look at if you can budget for it.
It’s very rare that any company would take out a critical illness only policy. This is due to the fact that it’s only offered by a few providers, and is often more expensive than a life and critical illness policy.
How much does key man insurance cost?
A key person insurance policy is underwritten on risk, the same as a normal life insurance policy, so the cost depends on a variety of factors, such as; age, smoker status, sum assured and term. Obviously the more cover you want the more the premium will be.
A life-only policy is much cheaper than life and critical illness as there is less risk. Of course someone who is in their 60’s will be more of a risk than someone in their 20’s.
How to get the best price
To get the best deal, it’s best to go to a provider who specialises in business protection as they will be able to give you the best price.
Always make sure you go to a whole of market broker as they will be able to get the cheapest quotes but also give you the widest choice. Brokers are paid a commission so you should also look to go with someone who does not charge a fee.
At KeyManInsurance.com we are able to compare all the top UK brands and give you the widest choice of available UK insurers. We also give back more commission to get you the best deal. And with customers awarding us 4.9 out of 5.0 on TrustPilot, you know you’re in good hands.
It’s a good idea to take out a policy for as long as possible. A longer term will be more expensive as the risk is higher when older. But we have known terms to run out just before the key person suffering an illness.
It’s also extremely important to make sure you are 100% honest when applying for cover. Non-disclosure is one of the main reasons for a policy not to pay out. Saying a key person is not a smoker when they are will save you on the premium but will deem the policy useless if you go to make a claim.
Always make sure you speak to an advisor who is qualified and a company that is registered with the Financial Conduct Authority.
Nobody likes taking out insurance and hopefully you will never need to make a claim. But if your key person does fall critically ill or dies, your key person insurance will help your business to recover.
Getting a quote
To get a quick quote, call KeyManInsurance.com on 020 7112 8844. Quote “BYTESTART” and you could get a free Kindle when you take out a policy (Terms & Conditions apply, details will be provided with your quote).
More on other types of business insurance
You will find more on other types of business insurance, in these ByteStart guides;
- Which types of insurance must your business have?
- ByteStart’s guide to professional indemnity insurance – what you need to know before buying cover
- What is public liability insurance? – A guide for businesses
- What is employers liability insurance, and is my business legally required to have cover?
- A Concise guide to Directors’ and Officers’ insurance
- Guide to Intellectual Property insurance for start-ups and small businesses
- A guide to income protection insurance for sole traders and start-ups
- Beginner’s guide to office insurance