Answered by Tom Conner
There are no absolute limits when looking to protect a key person however guidelines are provided and any benefit level should be justified.
Most businesses when setting up keyman cover rely on one of two figures to set a level of cover.
- Multiple of Salary
- Multiple of Profits
What is key person insurance?
Keyman insurance is designed to protect the profitability of your business, when looking to set the level of cover based on a multiple of profits the guidelines for the upper limits on the company as a whole are 2 x gross profit or 5 x net profit. If there are a number of key people to cover the level of benefit would need to be apportioned according to each key persons contribution.
When basing the level of cover on a multiple of salary the guidelines set the a limit of between 7 and 10 x gross salary. When basing the level of cover it is important to consider the costs over and above lost profits such as the costs of recruiting and training a replacement.
Frequently Asked Employee Benefits Questions
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