What Is Key Person Insurance?
Key Person Insurance (also commonly referred to as Keyman Insurance) is a type of business protection which pays a cash lump sum to the insured company in the case of the death or serious illness of an employee covered by the policy.
A key person is an employee considered to be crucial to the running of a business and likely to be someone that the company would find hard to replace. For example, this could be a:
- Founder of the business or chief executive
- Company director
- High-performing sales person or business development manager
- Senior employee with business-critical responsibilities such as an IT manager, product designer or head engineer
What is the purpose of keyman insurance?
Keyman cover is designed to protect smaller businesses from the risk of financial catastrophe when losing a key member of the team.
In smaller organisations, should a key person die or be unable to work due to illness, their absence can result in significant loss and stress.
The key person may have brought valuable business development skills, a raft of business contacts, a high-level of expertise on which revenues rely or outstanding means to raise vital funds for future projects.
The lump sum payout can then be used to help lessen the financial blow to the business and help ensure a high-level of business continuity.
What can a key person payout be used for?
There are no restrictions as to what a key person insurance payout can be used for within the business.
Examples of possible expenditures include:
- hiring of consultants to ensure the successful completion of contracts;
- funding the recruitment costs required to find and replace the vacant position;
- training costs to fill the skill gap;
- repaying any outstanding business loans;
- mitigating any loss or decline in business revenues.
In a worst-case scenario, keyman cover could even help wind down the company in a methodical, compliant fashion.
Additionally, the payout could even be used by the company to purchase any shares bequeathed by a deceased key person although in this scenario, Shareholder Protection Insurance is likely to provide a far more secure and comprehensive policy to cover this eventuality.
How is key person insurance taxed in the UK?
In the UK, the cost of the key person insurance premiums can be offset against corporation tax. Equally, any payout is classed as a trading receipt and will therefore be taxed via corporation tax.
How much should each key person be covered for?
You choose how much cover you would need for each key person. It is recommended that a key person in your business be covered up to twice their contribution to gross profits. Alternatively, cover could be up to five times their contribution to net profits.
Consider these important statistics
Did you know that according to the Office of National Statistics, nearly 90% of businesses in the UK employ fewer than five people? And, that a healthy male aged 55 has a 1 in 12 chance of dying?
And..that 50% of people born after 1960 will be diagnosed with cancer at some point in his or her lifetime?
Apologies for these simultaneously startling and sobering statistics. However, in our opinion, knowing is better than not knowing. So, if business continuity is everything to you, talk to the experts at Black Lion about keyman insurance.
How can we help?
Black Lion Insurance provides whole of market advice on a wide range of keyman insurance policies. We offer tailor-made advice to support the needs of businesses throughout the UK.
Pick up the phone and call us on 0203 011 00 22 and we’ll be pleased to help you. We’ll discuss the level and length of cover you need, as well as other relevant personal details. For example, we’ll need information on the age of the person, their health, smoker status, family history and so on.
In the event of the death or serious illness of a key employee, please be assured that our team will handle your claim with sensitivity and care. We will liaise with the insurer on your behalf to make sure that your claim is paid as soon as possible.
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What Are your Options?
Keyman Life Insurance
You’ll be able to cover your your business in cases of death of a key person, or if they become terminally ill.
Key Person Critical Illness Cover
If a key member of your staff suffers a serious illness (for example a stroke, heart attack or cancer), critical illness cover could protect your business.
Part of Halo Consulting, Black Lion Insurance are a dedicated team of insurance consultants with years of experience in guiding our clients to a solution that meets their specific needs. We specialise in helping both employed and self employed individuals, as well as business owners on a variety of solutions, which range from life insurance, income protection insurance, keyman insurance and shareholder protection insurance.