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What is keyman insurance?

What is Keyman Insurance? What does it cover?

It doesn’t matter whether you call it Keyman Insurance, Key Man Insurance or Key Person Insurance: it’s all one and the same.

Keyman Insurance is a type of business protection that covers your company for the loss of a key member of staff, either because they have died/been diagnosed with a terminal illness or have suffered one of a specified number of critical illnesses.

The policy pays a lump sum to the business to help deal with any issues arising from their absence.

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What Keyman Insurance covers depends on whether you choose standalone Keyman Life Insurance or package it together with a Keyman Critical Illness policy. Combining the two provides the most cost-effective and comprehensive Key Person cover for your company.

46% of businesses stated they would fold if a key person died or suffered a critical illness (Legal & General, 2016).

How would your company cope financially?

Click to compare Keyman Insurance quotes from all of the UK’s leading business protection insurers and start the process of getting your company covered.

 

What is Keyman Insurance?

Keyman Insurance protects your company against loss of profits and any other disruptions to business continuity resulting from the death or critical illness of a key employee. These are usually the founder or founders, but could also include top sales people, web designers, financial officers or anyone else with a significant stake in the company’s success.

It offers a cash injection to help deal with the financial fallout from the loss of a key individual. They payout can be used to meet any sudden costs that arise from the loss, such as staff replacement costs or making up for lost revenue.

With Legal and General finding that 58% of companies had no legacy planning in place should the worst happen to a key person, it’s no surprise that 46% of companies thought they’d fold immediately if one of their key staff members died or suffered a critical illness.

victoria-slade-can-advise-you-on-keyman-insurance

“Most companies have at least one key person whose loss would cause serious business disruption or even collapse. The loss of that person’s ambition, talents, vision and drive could have a devastating financial impact on a company.

“Covering that person’s life and health with a Key Person Insurance policy could offer the lifeline a company needs to stay in business should the worst happen.”

Victoria Slade
Business Protection Adviser at Drewberry

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Why key person cover is so important for small companies…

According to the Office for National Statistics, 95.6% of companies registered in the UK in 2016 employed fewer than 10 people.

Most UK companies are small, and small companies are particularly vulnerable to the loss of one or two key members of staff.

keyman insurance for small company

Without them, there could be issues securing investment, maintaining lines of credit or even simply with keeping the company going.

Businesses of all sizes should consider Key Person Insurance if they have an individual or group of individuals that they could not do without, but small companies feel such losses particularly acutely.

Keyman Life Insurance or Keyman Critical Illness Insurance?

With Key Person Insurance, a company can insure just the life of a key individual or bundle the cover together with Critical Illness cover.

Given the risk of an individual developing a critical illness is significantly higher than them dying suddenly, it makes sense to insure both the life and health of a key individual.

The average age of a claimant on Aviva’s Critical Illness policies in 2015 was 45, down from 46 in 2014.

By choosing both types of cover, the policy will pay out not just in the event of death, but also if the insured is diagnosed with a disease such as cancer, multiple sclerosis (MS) or Parkinson’s, or if they suffer a heart attack or stroke. This gives the insured individual the peace of mind that their company can cope without them so they can focus on recovery.

Keyman Case Studies

Key Person Insurance Case Studies

Why AdWorks took out Keyman Insurance

Why Applegate chose Keyman Insurance

Why Bikmo opted for Key Person Insurance

 

What does Keyman Insurance cover?

The payout from a Key Man Insurance policy can be used however the business sees fit. One common use for payouts is meeting recruitment fees and any costs associated with training a replacement so that business can resume as quickly as possible after a key person’s departure.

The cash lump sum can also be used to address issues including:

  • Hiring and paying for emergency cover
  • Loss of profits
  • Meeting ongoing loan repayments
  • Having to repay an existing loan
  • Loss of faith in the business’ future from investors, lenders and suppliers
  • Difficulties in raising capital for new products or developments etc.
  • Loss of important business contacts
  • Absence of detailed knowledge about the business’ processes and systems
  • Loss of goodwill from customers.

In circumstances where there is only one key person and there is no business without them, the cash could even be used to wind down the company in an orderly fashion. This could alleviate any concerns for the bereaved family relating to their deceased loved one’s business affairs. Winding down the business could include paying off creditors and perhaps providing severance pay to any staff.

Remember, unless the policy has been taken out to cover a business loan, HMRC generally taxes the payout from a Key Person policy as a trading receipt.

As such, it’s important to gross up the sum insured by your company’s corporation tax rate to ensure it is large enough to cover your company’s needs.

Drewberry-adviser-rob-harvey-can-help-compare-keyman-insurance

“When a company relies heavily on a key individual or individuals, it’s vital to make sure the business can cope financially in the event of their sudden absence.

“We’re very familiar with the idea of insuring our own lives to leave something for our children or other dependents, but less used to insuring our lives to protect our business interests. This is despite many entrepreneurs seeing the company they are building up as their baby!

“With a Keyman Insurance policy in place, companies and their owners can rest easier knowing they are protected should the worst happen.”

Robert Harvey
Independent Protection Expert at Drewberry

Compare Top 10 UK
 Protection
Insurers
 
Takes approx. 60 seconds
Type of Cover
Level of Cover
Date of Birth
Loading your options...
Thank you for using our Quote Tool
If you need some help, just call us!
T: 02074425880
Our in-house Experts are here to provide FREE impartial advice!
Our Experts can answer all your questions
Our Experts can send you more appropriate options based on your personal circumstances

Very important if you are either Self-Employed or a Company Director.

Our online quote tool is good but our Experts are better

Oue Experts have access to far more insurers and can often find a better deal offline.

Saves you time, let our Experts do what they are best at

Frequently Asked Employee Benefits Questions

 
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