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What is Key Person Insurance in the UK?

Key Person Insurance (sometimes known as Key Man 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 without whom the business would lose revenue due to their irreplaceable nature. This type of insurance policy is designed to help companies weather the financial cost of their absence.

How does Key Person insurance work?

There are three ways that employers can protect their business from the loss of their most important people through a Key Man scheme:

  1. Life Insurance – if the business-critical individual was to pass away, the business is financially compensated.
  2. Critical Illness Cover – if the key person suffers a serious illness or becomes disabled and unable to work, the business is compensated.
  3. Critical Illness AND Life Insurance – the business is compensated in either event.

Key Person 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:

The employer nominates the Key Person

The employer takes out Key Person Insurance on that employee

The employer pays for the premiums and is the beneficiary in the result of a successful claim

The employer receives a lump sum cash payment in the event of a successful claim

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What are the benefits of key man insurance?

Quite simply, it helps a business survive in the event of losing its most important people (or person). 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:

  • Cost of sick pay
  • Cost of recruitment and training
  • Cost of financial loss
  • Debt costs

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 is most keen to sell.

Who can be defined as a Key Person?

Practically anyone employed by the business can, in theory, qualify, including:

  • Owners
  • Managers
  • Managing Directors
  • Sales leaders
  • Technical staff
  • Creative talent
  • Self-employed workers

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.

How much does Key Person Insurance cost?

The cost of Key Person Insurance 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.

How can I buy Key Person Insurance in the UK?

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.”

Who offers the best Key Person plan?

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. 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 Key Person policies, including:

zurichLogo

“Availing of this kind of life insurance can give additional security to your business, as it safeguards against the loss of a key employee.”

vitalityLogo

“…Designed to cover your most valuable employees. This could be the CEO or someone with a specialist trade.”

legalLogo

“Protect your business against the impact of critical illness, terminal illness or death of your most integral employees.”

canadalifeLogo

“Running a successful business means dealing with tough issues – and preparing for the unexpected is one of them.”

avivaLogo

“…protecting against the financial consequences of the death of a key person, usually someone that has specific expertise or is otherwise central to the running of the business.”

Frequently Asked Questions

Is Key Person Insurance tax-deductible?

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.

HMRC offers specific guidance here.

How long does the policy last?

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.

Can the Key Person’s family receive payment?

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).

How long will it take to kickstart the policy?

If you’re working with Engage, then not very long. During a short phone call we can ascertain:

  • The needs of your business
  • Whether this type of insurance is worthwhile
  • Details of the Key Person to be covered
  • The level of coverage required

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.

Key Person Insurance vs Life Insurance: What’s the difference?

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.

Key Person Insurance vs Life Insurance: What’s the difference?

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.

Key Person Insurance
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