Key Person Cover

Safeguard your business against the financial effects of death or serious illness of a key person. The claim is paid to the company, allowing breathing space to help keep the business trading as normally as possible.

You protect the company photocopier – so why not your key people?

It’s probably unthinkable not to have insurance protecting your business contents from the effects of breakdown, accidents, fire, flood or theft. However, the effect of losing a key employee within the business would be more difficult to recover from. Proper cover is vital to help your business recover quickly and minimise the effect on your cash flow and profits should an unfortunate event happen.

40% of all businesses say they would cease trading in less than a year after the death/loss of a key person.*

Cash is the lifeblood of all businesses. In fact, many businesses that fail are profitable, but the reason they cease trading is down to a lack of cash flow. Key Person Cover helps ensure that your company receives an injection of cash when it is needed most, enabling you to:

  • Replace lost profits.
  • Avoid any cash flow issues.
  • Repay any outstanding loans/debts.
  • Recruit a replacement on either a temporary or permanent basis.
  • Train other employees to take over the key person’s role.

What are the chances of suffering a critical illness or dying before age 65?

[Not a valid template]

What are the chances of suffering a critical illness or dying before age 65?

Who is a ‘Key Person’ in your business?

A key person is any employee whose death or continued absence from work would have an effect on the profits. Would you classify yourself as a key person?

Key people are individuals whose knowledge, skills, leadership or experience are important the financial success of your business.  A few examples may include, but aren’t limited to:

  • Director (Managing, Commercial, Sales, Finance)
  • IT Specialist
  • Technicians and R&D Personnel
  • Head of Product Development
  • You

Analyse the impact on your own business

If you’ve read the box above you’ll know which people are key in your business. Take a moment to consider the following as you picture your business and those employees:

  • What specialist skills/knowledge do you or other key staff have?
  • Could anyone else do their work?
  • Would the business need to recruit and train a replacement?
  • How long would the business survive without a replacement?
  • How quickly would the business need more money?
  • What impact would this have on the business financially?
  • Could the company recover without an injection of funds to replace the loss of profits?

 

Without appropriate Key Person Cover in place, the following consequences could happen:

  • Business suffers a significant loss of profits
  • Increased drain on business funds and time
  • Loss of important business contacts
  • Loss of specific knowledge of the business’s systems and processes
  • Costs and time incurred to find a replacement
  • Costs and time drained to train a replacement
  • Business reputation – potential loss of confidence for both staff and clients
  • Staff start looking for other jobs
  • Competitors pounce on your weakened position
  • Reduced cash flow may mean loans/overdraft can’t be serviced – creditors could demand immediate repayment of any debts in full

 

However, Key Person Cover provides an ideal solution so that you can:

  • Replace lost profits
  • Avoid any cash flow issues
  • Repay any outstanding loans/debts
  • Recruit a replacement on either a temporary or permanent basis
  • Train other employees to take over the key person’s role

Is a bank loan a more cost-effective solution?

The reality is that a loan may not even be an option. Consider the timing – your business has just lost one of its key people.

  • If you were the bank manager lending the cash, how much confidence would you have in the business?
  • What personal security might apply to any borrowing? The bank may require your personal assets as security, such as your home, which could also put your dependants at risk.
  • How would your business’ credit rating be affected if an owner or key person has been lost? Considering they play a key role in the profits and performance of the company.
  • Who knows what the market conditions will be at the time and what the lending policies will be?

These questions needn’t be asked when you have Key Person Cover in place.

Why should I include Critical Illness Cover?

You are far more likely to suffer a serious illness than you are to pass away – fact. The financial situation is often worse than the event of death.

If the key person suffers, for example, a severe heart attack, it is likely that they won’t return to work for quite some time, if at all. However, they might still expect to get financial support from your business without being able to contribute to the running or profitability of it.

You may have to pay two salaries for one role should you need to recruit and train a temporary replacement.

Frequently Asked Questions

How does Key Person Cover work?

Key Person Cover (also referred to as ‘Profit Protection’) is Life Insurance and Critical Illness Cover (if chosen) written on the life of the key person and owned by the business. Therefore, any money due becomes payable to the employer. Premiums are paid by the business.

Who pays the premiums?

The company pays the premiums. The insurer will set up a Direct Debit to collect monthly or annual premiums from your business bank account.

Where does the insurer pay the policy proceeds in the event of a claim?

As the policy is taken out by the business, the proceeds are paid to the business. From here, you will decide what to use the money for.

You can assign the policy to a lender, in which case the proceeds will be paid directly to them – if you wish to protect a loan/debt then there is a specific policy for this – Business Loan Protection.

I’m a Sole Trader – do I need cover?

Questions:

Is there anyone else who could run the business?

What would this cost?

Are there any business loans in place that are secured against your family home?

Consequences:

The business would fold leaving any surviving family without income.

The sole trader’s dependants being left without support.

The family home at risk to creditors.

The business being sold at a loss if no one can continue it.

A possible IHT liability if funds increased the surviving souse’s estate value.

How much will it cost?

The price will vary depending on the person’s age, health, job, the amount of cover needed and maybe even certain hobbies. This is why price comparison site quotes are often meaningless as they won’t account for your specific individual circumstances.

We will provide you with accurate premiums from the outset. Nobody likes to see a price and then be told it’s not available to them.

The policy you buy is there to protect your business – not anyone else’s – so it’s worth finding a policy that will exactly suit your needs.

How much cover should I have? And for how long?

We don’t do off-the-shelf. We genuinely care about getting the right cover for you. Your business may be similar to someone else’s, but never identical. Our consultative approach means that you’ll feel listened to and understood. Also, you’ll get a solution that’s tailored to your personal needs.

Why shouldn’t I get a Joint Policy with another key person?

Each employee will contribute to the profits or running of the company in their own way. It is therefore more relevant to have a Single Policy each, where the amount of cover is specific to the impact should that person be unable to work for a sustained period or pass away.

Can I cancel my policy if I no longer need it?

Yes. Although it is worth considering that should you need to re-apply for cover at a later date, the same cover is likely to cost more as you will be older. Also, insurers will reassess your Health & Lifestyle at the time, which means you could be charged more if your health has deteriorated, or worst case – may not be able to get any cover at all.

The insurer won’t charge you any cancellation fees and, unlike some competitors, we won’t charge you any fees either.

Our friendly Business Protection Specialists are available to answer your questions, provide expert advice and make recommendations – so please call us on 0800 988 36 37 – or you can request a call back.

 

*Research from Legal & General’s ‘State of the Nation’s SMEs’ report, 2015.