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Is There a Maximum Limit on the Amount of Key Man Insurance I Can Take Out?

We are a rapidly-expanding business and wanted to know whether we are limited in the amount of Key Person Cover we can take out based on our current figures or whether can account for our growth forecast?

Question asked by Stephen Jones

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 Insurance 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 2x gross profit or 5x 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 7x 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.

It’s also worth noting that each individual insurer will have their own underwriting limits, beyond which they may require additional medical evidence such as a health screening before they can agree to that level of cover.

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Drew was incredibly helpful all the way along and very responsive and patient with any questions I had (which were many). He was able to get me a much better deal on my new health insurance than I had been able to get online. A success all round!

Francesc Sale
07/06/2019
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