What is Key Person Insurance and how should it be used?
Key Person Insurance is a policy arranged by a company in order to cover an important person/people within their business should they die or suffer a serious illness. In most cases, the person will be of significant value to the business; without that person, the company’s profits are highly likely to be affected.
These plans are designed to pay out direct to the business in the event of death or critical illness suffered by the person insured. The idea is that the proceeds are then used to help keep the company up and running, covering the loss of profits and securing the company’s future.
What type of Key Person policies can be taken out?
Life Only Policy – A claim is paid out if the insured person dies. In addition, these policies will often include terminal illness cover, which pays out if the insured is diagnosed as being terminally ill.
Life & Critical Illness – As above, this will pay out on the insured persons death or the diagnosis of a terminal illness, but also on diagnosis of a critical illness. This will be subject to policy definitions – for example, a minor skin cancer may not be deemed serious enough to lead to the policy paying out.
Who should a company cover with Key Person Insurance?
Many different employees within your company could be considered suitable for this type of policy. It could be the office manager, responsible for the day to day running of the business, and it’s not difficult to see how a business could be affected by this type of loss. It could be someone with a skillset that’s incredibly difficult to replace, or a long standing person who undertakes ‘unskilled’ tasks but who has developed such an understanding of how your business and processes work that training a replacement could feel like taking a lifetime.
On that point, many of the people you might consider for this type of policy will obviously be directors and managers. However, often these type of roles are filled by people who can move relatively seamlessly from one company to another and, as such, can be replaced quite easily. On the other hand, the quickest seamstress, or the typist who can produce twice as many documents in a day as any colleague, could – and probably should – be considered as key people. Without them, profits are likely to drop, or the efficiency of the business may well be affected.
What Else Do I Need to Know About Key Person Insurance?
The key person insurance cost will depend on their age, sum assured, smoker status and term of the policy. There are online calculators that you could use, but with an insurance policy that could help your business survive following the unthinkable, we would always recommend that you speak to an expert.
Please feel free to call us on 0844 809 4897, or complete a call back request and we’ll call you to discuss.