Key Person Insurance
Our expert team are ready to help your business:
- Understand how the policy works
- Access superior quotes than available on the market
- Protect your business against the financial impact
Key Person Insurance
Key Person Insurance (sometimes known as Key Man Insurance or Business Protection Insurance) is a form of coverage which allows businesses to protect themselves from the financial implications of losing an important member of the team due to illness or death.
While all team members are important to the successful operation of a business, there is often a particular employee (or director) without whom the business would lose significant revenue due to their irreplaceable nature. This type of insurance policy is designed to help companies weather the financial cost of their absence.
There are three ways that employers can protect their business from the loss of their most important people through a Key Man scheme:
The insurance is paid-for and owned by the employer. It’s worth noting that senior management and company directors can themselves be covered in this way, as well any employee (or even freelancer) whose loss would be of financial significance.
The process of taking out Key Man Insurance works as follows:
Quite simply, it helps a business survive in the event of losing its most important people (or person). According to research by Legal & General, over half (52%) of business would have to stop trading in less than a year after the death or critical illness of a key individual.
The pay-out amount is calculated based on the financial worth and repercussions of losing the selected employee and/or what’s required to mitigate the effects (for example, recruiting a replacement or retraining a current team member).
In summary, Key Person Insurance can provide cover for:
Terms and conditions of coverage vary so it’s vital to read the small print carefully and make sure the coverage provided is what your business needs to handle any financial disruptions successfully. As an independent consultant, we provide impartial advice to our clients and make sure they get the deal they require – not the policy the sales advisors are most keen to sell!
Practically anyone employed by the business can, in theory, qualify, including:
The only thing that makes a key team member stand out, for the purposes of Key Person coverage, is their financial value to the business. This could be due to their leadership skills, specialist knowledge, skillset or experience levels. Either way, their financial value must be provable.
The cost varies widely due to a range of factors, including:
The cost of Key Person Insurance can start from as little as £2 a week but any meaningful estimate depends on the above factors. To get a FREE estimate contact our team of independent health insurance experts on +44 (0)1273 974419.
There are two methods by which a business can invest in this form of insurance coverage:
1. Go straight to an insurance provider:
All the major insurance companies (such as Bupa, AXA and Canada Life) offer Key Person Insurance. However, it’s important to note that all providers have a degree of financial self-interest in the deal they offer and it may not provide optimal business benefit.
2. Employ an independent insurance broker:
Engage specialises in guiding businesses through the process of buying insurance and breaking down the practicalities into simple easy-to-grasp terms. Like any good broker, we work on behalf of you and your business – rather the insurer’s. Engage can also manage the process from start to finish and negotiate better prices than are available on the market.
“We appointed Engage Health Group to our plan and through their negotiation, we saved £9,000 on our annual premium without having to change insurers.”
Many of the major UK insurance providers offer Key Person Insurance. However, it’s impossible to say who offers the best value scheme prior to any negotiation as there are so many variables. Sadly, it’s not like flicking through a menu at a restaurant!
Discovering the best Key Person plan requires speaking to different providers and gathering a variety of quotes. At Engage, we undertake this process on behalf of our customers. Due to our experience – and the relationships we’ve developed over the years – we’re able to negotiate superior deals than would ordinarily be available for businesses going straight to the insurer.
We work across the market with all the major insurers to find the best policy for your business, including:
If it is taken out solely for the requirements of the business, then HMRC is likely to class it as a tax-deductible expense. Remember, the insurance needs to be taken out solely for the interests of the business. As with all tax-related issues, it’s worth speaking to a qualified accountant.
In short: for as long as you need it to and for as long as the designated person is within your business and performing the same role.
Quotes usually start from five years (but sometimes as short as two years) all the way up to retirement age.
Sadly not. The insurance is designed to protect the business not the employee or their loved-ones. If you wish to insure the employee, you will need to take out a Life Insurance or Critical Illness policy (in both cases, you can cover all your employees under a group scheme).
If you’re working with Engage, then not very long. During a short phone call we can ascertain:
Equipped with this information, we can begin gathering quotes from across the insurance market and present the deals which best fit your business need and budget.
In cases where an employee’s medical history is required (known as “underwriting”), it may take slightly longer.
Most insurers operate two levels of cover (Basic/Standard and Extra/Extended), however, most employers opt for the higher of the two levels. Base cover usually covers between 13-15 conditions and Extra/Extended typically adds another 24-26 conditions on top of the Base/Standard plan.
A Key Person policy protects the finances of the business from the loss of their most important employee(s), while Life Insurance is designed to compensate an employee’s family.
Key Person Insurance can also be taken out against the absence of an employee due to a serious illness.
Engage Health Group Ltd is registered in England and Wales. Companies House (No. 10075534). Engage Health Group Ltd registered office: 1A City Gate, 185 Dyke Road, Hove, BN3 1TL. Engage Health Group Ltd is authorised and regulated by the Financial Conduct Authority (No 812846). Important – insurance policy benefits will cease if you stop paying the premiums on your policy.