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? If there is a maximum amount, will this be based on our current figures or can it account for our growth forecast?

Question asked by Stephen Jones

Keyman Insurance is designed to protect the profitability of your business should a key person die or become critically ill.

There are no absolute limits when looking to protect a key person. However, insurers provide guidelines for how much cover they’re willing to offer. Furthermore, you should be able to justify any benefit level you choose.

Keyman Insurance: Setting the Sum Assured

Most businesses setting up Keyman insurance rely on one of two figures to set a level of cover:

  • Multiple of salary
  • Multiple of profits.

If you’re setting up cover based on a multiple of profits, general guidelines for the maximum cover are around twice gross profit or five times net profit. However, this may vary depending on your insurer.

When it comes to basing cover on a multiple of salary, general guidelines set a limit of between 7x and 10 x gross salary. Again, this may vary between insurers.

If there are a number of key people who need cover, you’ll need to match the level of benefit to each key person’s contribution to the business.

Don’t forget, when you’re choosing a level of cover it is important to consider the costs over and above lost profits. For example, this might include the costs of recruiting and training a replacement.

It’s also worth noting that each individual insurer has their own underwriting limits. Beyond these limits, the insurer may need additional medical evidence such as a health screening before they can agree to that level of cover.

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