Why Applegate Chose Keyman Insurance
A case study detailing the success of Applegate and why they chose to take out Keyman Insurance with Drewberry
Many businesses can benefit from Keyman, or Key Person, Insurance. From start-ups that rely on a founder with specialist knowledge, to growing businesses with high performing staff. Whatever size your company, there’s always one or two individuals you simply can’t do without.
But what would happen if such an individual became critically unwell, or even passed away suddenly? Losing a key person, whether through illness or death, can leave your organisation struggling to recover. It can even compromise your company’s future.
This is where Keyman Insurance comes in. But what exactly is it? In this guide, we’ll tell you everything you need to know. You can also compare instant online quotes from all the top UK insurers, such as Aviva, Vitality and more.
Keyman Insurance is a form of both Business Protection and Life Insurance. It offers financial protection to businesses by paying out a cash lump sum if a key member of staff is lost as a result of:
A policy payout is designed to cover any loss of revenue your company might suffer as a result of losing the key person.
There are several forms of business protection, many of which are designed to cover the life of a director or shareholder specifically. The beauty of Keyman Insurance is that it can cover anyone who is essential to the everyday running of the business.
When trying to determine who a key person is when talking with our clients, we always ask the following questions:
By answering these questions, you can start to pinpoint which of your employees are vital to the success of your business and therefore in need of protection.
According to Legal & General, 70% of businesses would fold in less than two years due to the sudden loss of a key person.
Unprotected businesses are therefore running the risk of severe disruption if they lose any of their key personnel. Such a loss can have a significant financial impact. It could leave you with unpaid company debts or even impact your ability to continue trading.
Keyman Insurance certainly won’t replace a business owner or star employee. But it will help support your company financially should something happen.
Keyman cover can be a critically important way to protect your business from the financial impact of losing a vital person.
It allows for business continuity without a monetary loss. Yet, despite being such an effective form of protection, only 9% of businesses actually know about it.
Rauri Taylor
Independent Protection Expert
As a business owner, you can choose to take out Key Person Insurance for any employee you feel is indispensable. For example a:
Your limited company or limited liability partnership will own and pay for the policy. If the individual who is insured is then unable to work due to death, a critical condition or terminal illness, the policy will pay out a cash lump sum to the business.
This money can then be used to help manage the impact of losing this individual. For example, you could use it to hire a new person or to train an existing member of staff. This can help safeguard your operations, provide financial stability, and ensure business continuity.
When it comes to Keyman Insurance, there are a couple of different options to choose from, including:
The level of cover you need will be unique to your business. It can vary significantly depending on certain factors such as the key person’s role and responsibilities, the company’s financial situation and the potential impact of losing them.
EXPERT TIP! 🤓
Not all serious conditions are covered by Critical Illness Cover. Some diagnoses, such as less severe cancers, may not be included in your cover, or may only pay out a partial claim. It’s essential you check the policy wording or ask your adviser for assistance.
Whatever industry you’re in, the one thing no company owner wants to think about is how the loss of a key worker will impact their business. Unfortunately, it’s something that every business should plan for.
But how can you determine if Keyman Insurance is the right protection for your business? Firstly, as morbid as it is, you need to think about the risks of losing a key person.
We realise it can be uncomfortable to think about this, but it’s important to evaluate the risks of unexpectedly losing a key employee. Planning for the worst-case scenario can help safeguard your business and your employees’ livelihoods.
According to the Office of National Statistics (ONS) life expectancy data, the chances of a healthy male passing away within the next 10 years are as follows.
Risk Of Death In 10 Years | Age | Risk |
|---|---|
35 Years Old | 1 in 62 |
45 Years Old | 1 in 29 |
55 Years Old | 1 in 12 |
Sadly, it’s not just the risk of death you’ll need to consider, but the risk of serious illness, too. The risk of falling ill is greater than the risk of dying younger. In fact, the Association of British Insurers has found that cancer, heart attacks, and strokes make up around 80% of critical illness claims.
While Critical Illness Insurance covers serious illnesses, it doesn’t include less serious conditions, even if they stop you from working. Common causes of time off work include mental health conditions and musculoskeletal issues.
For protection against a greater range of illnesses, many directors and small companies turn to Executive Income Protection.
This offers a continuation of income if you’re unable to work due to accident or sickness. What’s more, it can also protect your personal finances as well as a business loan.
Samantha Haffenden-Angear
Independent Protection Expert
Many businesses would suffer a serious impact if they lost a key person, such as a founder, director, or star employee.
Businesses can use the payout from a Keyman Insurance policy for a variety of purposes, for example:
EXPERT TIP! 🤓
Using an expert adviser, such as one of the team at Drewberry, offers you extra financial protection. This is because it’s classed as an advised sale. This means if the policy ends up not being suitable, you’re protected by the FCA.
If you need any help or advice, please do not hesitate to get in touch. For fee-free advice pop us a call on 02084327333 or email help@drewberry.co.uk.
One of the most important things to think about when taking out Key Person Insurance is how much cover you need.
The process of calculating the right level of protection will depend on several factors. For instance, you’ll need to think about what role the person has, and how much it might cost your business if you lost them.
Sometimes, it’s external investors or lenders that help to define how much cover is required. Some require a benefit that reimburses the value of their investment. More demanding investors might also want to see their projected returns covered, too.
Even so, it often comes down to the business itself to decide who its key people are and their stakeholders’ expectations. One broad rule of thumb is that a key person should be covered for either:
This isn’t a fixed formula, and there is no one-size-fits-all solution. The value of your Keyman Insurance policy will depend on your business and the people being insured, which is why it’s always best to get expert advice.
Our team of experts can help ensure you get the most suitable cover for your specific needs. If you’d like help, don’t hesitate to call 02084327333 or email help@drewberry.co.uk.
There are a number of factors that will determine the cost of Keyman Insurance. You can control some of the policy factors, such as the amount and term of the policy. However, other aspects that impact cost will be out of your control, for instance, the age and medical history of the person insured.
We’ve outlined some quotes below to give you an idea of how the costs of Key Person Cover could change based on a range of factors. All the quotes show monthly premiums.
Firstly, the provider you choose will impact what you pay. Each provider is unique and has their own approach to risk. Some specialise in high-risk occupations or hobbies, while others focus on more preventative services.
To illustrate how your choice of provider could impact the cost you pay, we’ve provided an example below. This quote is based on:
Insurance Provider | |
|---|---|
£16.03 | £20.33 |
The amount of cover, or sum assured, you need will also impact the cost of your premiums. As we discussed above, you may not have full control over this. Sometimes investors or lenders will require a specific amount of cover.
Having said that, we’ve gained some quotes for the same 35-year-old director we used before. This time, the figures show the monthly premium for two different benefit amounts. All the quotes are from the same insurer: Liverpool Victoria.
Level Of Cover | Benefit Amount | Monthly Premium |
|---|---|
£250,000 | £9.27 |
£500,000 | £16.29 |
There’s no specific term that Keyman Insurance should last for. You’ll need to think about how long the key employee is likely to stay with your company.
If they’re not a director or co-founder, you might set the policy term at 5 or 10 years and then review it at the end of that timeframe. But if the person insured by the Keyman Cover is a business owner, they might need the cover for longer.
We’ve run quotes for our 35-year-old company director, as before, but changed the policy term to give you an idea of cost. Both of these quotes are from Legal & General.
Policy Term | 10 Years | 25 Years |
|---|---|
£17.43 | £25.93 |
Sadly, the risk of developing a critical condition during our working lifetime is much higher than the risk of dying. Since it adds more cover, you can expect to pay significantly more for including Critical Illness Insurance in your keyman policy.
Using the same healthy 35-year-old company director as before, we’ve shown the cost of a Key Person Insurance policy with and without £250,000 critical cover. Both quotes are from Aviva.
Including Critical Illness Cover | Life Only | Life & Critical |
|---|---|
£18.19 | £74.32 |
The age of the person insured will also play a big role in how much a Keyman Insurance policy costs. As we age, the risk of falling seriously ill or dying increases.
To show how much age impacts premiums, we’ve provided examples below. The quotes are based on a £500,000 benefit amount, with a 10-year term. The director in question is a healthy non-smoker and all the quotes are from Scottish Widows.
Impact Of Age On Premiums | Age | Premium |
|---|---|
35 Years Old | £19.07 |
45 Years Old | £39.61 |
55 Years Old | £92.45 |
Just like all forms of insurance, when you take out Key Person Protection, insurers will assess the risk of providing the cover. If the key employee has any existing health conditions, it may impact the cover you can take out.
For Life Insurance, a health condition might cause an increase to the policy premiums. This could be due to a high body mass index (BMI), a previous illness, or a chronic condition. For Critical Illness Cover, some providers might exclude a prior condition from the cover completely.
There are a number of health issues that might class someone as high risk in the eyes of an insurance provider. But each provider differs, and what one sees as high risk another might not. As such, it’s important to compare providers when doing your research.
It’s known that smoking can increase the risks or severity of many health issues. As a result, many providers will charge higher premiums for Keyman Insurance when the insured person smokes. However, some providers have a ‘neutral’ approach to smoking, and don’t charge more.
To show how smoking can impact your premiums, we gained quotes for Key Person cover from Vitality. The figures are based on an otherwise healthy 35-year-old company director who wants £500,000 of level cover for 10 years.
Smoker VS Non-Smoker | 🚬 | 🚭 |
|---|---|
£36.92 | £21.71 | ☝️ 70% increase in monthly costs for smokers |
The specific role the key employee has will also impact the premiums. Just like with the above factors, insurers base the cost of premiums on the level of risk you present, and some occupations pose a higher risk than others.
If the individual seeking cover works in a hands-on manual job, they’ll be seen as higher risk than an office worker, for example. With higher risk jobs, the likelihood of higher premiums increases.
It’s not just the job role you do that insurers will look at. They’ll also consider whether you partake in any extreme sports or hazardous hobbies, as these would also put you in a higher risk category. These include:
Most online quote tools only show an initial premium, which doesn’t reflect any additional risk in terms of occupation, hobbies, or medical conditions, and the costs could change later.
We can work with providers to negotiate the best price on your behalf if your key person is higher risk. Just pop us a call on 02084327333 or email help@drewberry.co.uk
Samantha Haffenden-Angear
Independent Protection Expert
The main difference between Keyman Insurance and Relevant Life is how the benefit is paid out. With Keyman Insurance, the benefit gets paid directly to the business. Relevant Life, on the other hand, sees the benefit amount paid directly to an employee’s loved ones.
The policy is owned and paid for by the limited company or limited liability partnership.
There are certain circumstances where you may want to change the ownership of the policy, such as if the organisation ceases trading or changes name. You can do this through a “deed of ownership”. However, to make such a change you will need to consult your solicitor.
A Key Person Insurance policy is taken out by the business to insure an individual who is key to the company’s success. Should the key individual die whilst insured, the claim would be paid out to the company who is the beneficiary of the policy.
So, is Keyman Insurance tax deductible? This depends on the purpose of the plan, who will receive the benefit, and how HMRC treats this insurance.
The rules can be complicated and may appear quite arbitrary, as they depend on how your company plans to use the policy. We’ve outlined the main purposes of Key Person Protection below, as well as how HMRC classifies them.
The details above lay out the consensus on how HMRC taxes Keyman Insurance. However, we strongly recommend discussing your specific situation with your accountant and local inspectorate of taxes.
EXPERT TIP! 🤓
If HMRC taxes the payout, you’ll need to insure your key people for a larger sum than you need. This means you’ll be left with the correct payout after deductions.
We are an independent consultancy firm which provides quotes from all the leading UK Insurers. When carrying out a market review, we look at all the top UK providers, including:
No two insurers are the same. For instance, some cater to certain types of risk over others. This makes it really important to compare Keyman Insurance quotes from all the leading insurers when doing your research to find the best one for you.
The additional benefits insurers include alongside the core key person cover can vary significantly. For example, some providers offer extensive support services, including:
Again, it’s important to be clear about what you want to get out of your Key Person Insurance so that you end up with the most suitable cover.
Business requirements naturally change and evolve over time. As such, most Keyman policies are set up to last for 5 to 10 years, and are reviewed at the end of the term.
In the vast majority of cases, the answer is no, Keyman Insurance policies don’t need to be placed into trust. This is because the business pays for the benefit and the insurance provider pays the benefit back to the business in the event of a claim.
If it is ‘wholly and exclusively’ for the benefit of the business, then usually the premiums qualify for tax relief, but any claim would be treated as a trading receipt and be taxed accordingly.
If the policy is for the benefit of a lender or shareholders, then it’ll not meet this rule and it’s unlikely the premiums will be tax deductible.
It’s important to remember that Keyman Insurance is just one form of business protection. Before taking out a policy, you should understand what other options are available too. This will ensure you get the most suitable cover for your business.
Relevant Life Insurance is often a popular type of protection for company directors. This is because, in the event of the director’s death, the benefit amount doesn’t get paid to the business. Instead, the lump sum payment goes directly to the director’s loved ones.
It’s also a cost effective option. Premiums can be up to 50% cheaper compared to personal life insurance premiums.
Executive Income Protection is another popular type of protection which suits business owners. This is because it can protect a proportion of their monthly income if unable to work due to accident or injury. What it won’t do, however, is provide a cash benefit in the event of death, critical illness or a terminal diagnosis.
For this to happen, you’d need to take out other protection to provide comprehensive financial cover. For example, you could take out Life Insurance and Critical Illness Cover. Critical Illness Cover can particularly work well alongside Executive Income Protection.
This is because insurers provide very specific definitions of critical conditions. If you don’t meet these definitions, a claim can’t be made. However, if you have Executive Income Protection and can’t work due to accident or injury, you could claim on this instead.
Shareholder Protection is designed to pay out a cash lump sum in the event of a shareholders’ death. The benefit amount is then used to purchase the shares held by the insured individual from their beneficiaries.
This allows the remaining shareholders to maintain control of the company and protect the value of their own investments.
As you can see, there’s a lot to consider when setting up Key Person Protection. Your key people are your company’s greatest asset. So, it’s important to make the right choices that protect the financial success and wellbeing of your organisation.
Our expert advisers can carry out the hard work on your behalf. We’ll listen to your needs, research providers, and make a specialist recommendation. With our experience, we can negotiate the best possible rates and set everything up smoothly.
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
If you need help protecting a key person in your organisation give us a call on 02084327333 or email help@drewberry.co.uk.