Key Person Insurance

Protecting your most valuable people.

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Understanding Key Person Insurance

Key person insurance is a critical form of business insurance that safeguards a company against the financial losses that can arise from the death or incapacity of a crucial member of the team.

This insurance is especially important for small to medium-sized enterprises where the loss of a key individual can have a disproportionately large impact on the business’s operations and profitability.

Why Key Person Insurance Is Essential

  1. Risk Management: Provides financial stability and security in the event of losing a key employee due to critical illness or death.
  2. Business Continuity: Helps ensure the continuity of the business by covering the costs associated with finding and training a replacement.
  3. Credit Protection: Enhances the business’s creditworthiness by providing lenders with assurance that the company can cover debts, even in the event of losing a key person.
  4. Investor Confidence: Maintains investor confidence by demonstrating prudent risk management strategies.

How Key Person Insurance Works

When a company takes out key person insurance, it assesses the value of the key employee and determines the potential revenue loss the company would face if they were suddenly unavailable.

The insurance policy is then taken out for a sum that sufficiently covers this potential loss. The company pays the premiums and is the beneficiary of the policy.

Calculating Coverage

The amount of coverage required depends on the key person’s role and the potential financial impact of their loss. Factors to consider include:

  • The key person’s contribution to the company’s profits.
  • Costs associated with recruiting and training a replacement.
  • Impact on project timelines and contractual commitments.

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Common questions about Key Person Insurance

A key person is typically someone whose knowledge, work, or overall contribution is considered uniquely valuable to the organisation. This can include executives, department heads, key sales employees, or any individuals whose skills are crucial to the business.

The amount of key person insurance coverage is generally based on the estimated financial losses that the company would incur if the key person were unable to work. This can include lost sales, additional costs of hiring and training a replacement, and other financial impacts on the business.

Key person insurance typically covers the operational and financial impacts related to the loss of the key individual. This includes loss of profits, costs to recruit or train a replacement, and sometimes the repayment of loans or other financial obligations that might be at risk if the key person is lost.

Key person insurance can be set up on a term basis, which covers the key person for a specific period, usually aligning with their expected tenure at the company or the duration of a particular project or loan.

Yes, a company can take out key person insurance policies on multiple employees, provided each is considered crucial to the business’s operations and financial health.

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Every day people are making life changing decisions.

A young customer, in her early twenties, living with her mother and without children, faced the reality of minimal sick pay from her job as a marketing manager earning £30k annually.

Aware of the need to safeguard her earnings and savings, especially for future life events like homeownership, she opted for Income Protection. Understanding that being signed off work due to illness could jeopardise her financial plans, she embraced the policy.

Just six days after activating her income protection, she experienced an unexpected fainting incident on the London underground, resulting in hospitalisation and a diagnosis of fatigue, exhaustion, and vitamin D deficiency. Despite the distressing news, knowing she had the right cover in place provided a sense of reassurance.

Every day people are making life changing decisions.

A customer, aged 58, suffered a stroke four years ago, leaving him with residual effects such as loss of function in his right arm and leg.

Additionally, he was diagnosed as borderline diabetic with elevated blood pressure, cholesterol, and a high BMI. His family history, including his sister’s stroke at 58 and his brother’s benign brain tumour at 54, made it challenging to secure insurance from the broader market.

Despite numerous attempts by brokers over the years, only The Exeter was willing to consider his case. Finally, he obtained life insurance, bringing him immense relief. We plan to review his coverage annually to seek better rates.

Every day people are making life changing decisions.

A client faced challenges securing insurance due to his occupation as a pilot, limiting options to only three providers, one of which offered coverage at a high cost and required further medical underwriting due to his extensive flying hours.

However, as a whole-of-market provider, we successfully obtained coverage for him without additional underwriting, and at a significantly lower cost than previously quoted by other brokers.

Every day people are making life changing decisions.

In April 2024, Sam, the wife of our founder’s oldest friend Greg, contacted us after being diagnosed with myelofibrosis, a rare blood cancer. This diagnosis was particularly hard-hitting for us, as we had set up Sam’s Scottish Widows critical illness policy.

Throughout 2024, Sam faced intensive treatment and weeks of isolation from her two-year-old daughter. However, the financial burden was eased when her policy paid out within two weeks of her claim. Sam expressed her gratitude: “This lump sum isn’t for a holiday; it will literally pay the mortgage while I am on SSP during my treatment.”

Sam’s story underscores the importance of having the right protection in place, turning abstract statistics into a personal reality.

Every day people are making life changing decisions.

Carlo, one of our dedicated advisors at Cover Direct, recently assisted a client who needed to reassess his life insurance. The client believed he required more coverage due to changing circumstances. Carlo thoroughly reviewed his existing policy and advised an extension rather than purchasing a new, more expensive one, adding only £3 per month.

Carlo went further, recommending placing the policies in trusts for the client’s children to ensure they wouldn’t be included in his estate. He guided the client through all the paperwork, providing exceptional service. Thanks to Carlo, the client now has the right coverage at a reasonable cost and plans to return to us for future insurance needs.

Every day people are making life changing decisions.

As a business owner realised they lacked coverage for key personnel, they found Cover Direct online. Our thorough approach resonated with them. We took the time to educate them on various protection products, helping them choose Key Person Insurance to safeguard vital employees.

Our reasonable pricing also allowed them to opt for Relevant Life Cover, benefiting their employees and families. The peace of mind provided was invaluable, and the gratitude from their staff was unexpected. Our commitment to understanding and meeting their needs made all the difference.