As an employee, knowing your company has your back is always comforting. And as an employer, your business's success may heavily rely on certain individuals. But what if something was to happen to them? Could it result in financial losses and uncertainty?

In either case, key person insurance can be a valuable solution for any worst-case scenarios.

In this article, we'll look at how key person insurance works, why it's important, and how it can benefit your business.

Talk to a life insurance expert today...

What Is Key Person Insurance?

Key person insurance, also known as "key man insurance", is a type of life insurance that provides protection for businesses upon the loss of key people. This can be due to critical illness or death during the duration of the policy. The purpose is to help the businesses cope with any setbacks that occur from this.

In short, the policy pays out if any of the following occurs:

  • Death of the individual

  • Terminal illness (where life expectancy is less than 12 months)

  • Critical illness (if added onto the policy)

  • If the employee is unable to work for an extended period of time due to illness or injury (Key Person Income Protection)

Who is a key person?

A key person is any individual within a business who is seen as a vital part of the company. This could be a founder, owner, CEO, manager or others with specialised knowledge or expertise.

To identify a key person, ask yourself questions such as:

  • Who is responsible for making critical business decisions?

  • Do they have unique skills or knowledge that are difficult to replace?

  • Does anyone have strong relationships with important clients or partners?

  • Who is bringing in a significant portion of the company's revenue?

Read more: Do business owners need life insurance?

Interested in speaking to an adviser?

Who can take out key person insurance?

Key person insurance is typically taken out by the business itself, rather than the individual being insured. The policy is owned and paid for by the company. With this, it provides financial security to the business in case a key person passes away.

Small businesses, startups, and even larger corporations can all benefit from key person insurance. It is especially important for businesses that rely heavily on one or a few people for their success.

Options for cover

Key person cover typically works on a term basis. Like term life insurance, it protects someone for a set time. If they die during this stage, a payout will be made. However, if they survive the term, the policy expires.

There are 3 types of key person insurance:

  • Level: the payout amount and premium are fixed throughout the term. Because of this, it doesn't keep up with inflation.

  • Decreasing: the cover amount decreases over time. Like level cover, it doesn't keep up with inflation.

  • Increasing: designed to protect the policy from inflation. In doing so, cover increases yearly, as do the premiums.

To speak to an expert business insurance adviser, please call us on 01392 436193 (Mon - Fri 9am - 5.30pm)

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums, your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

If you are facing financial difficulties and can no longer afford your premiums, please contact your insurer as soon as possible to stop the plan from lapsing automatically. They may have a scheme that allows you to keep the cover.

What our customers say

Benefits of key person cover

There are several benefits to having key person insurance for your business:

  • Financial protection: The payout from the policy can help cover any financial losses or instability that may arise. It can be used for expenses like hiring temporary staff or recruiting and training a replacement.

  • Business continuity: Losing a key person can disrupt a business, even affecting clients/customers. Cover can help ensure that the business can continue to run smoothly despite the absence of the key individual. It provides a financial cushion that allows the business to stay afloat and maintain its operations.

  • Employee retention and recruitment: Knowing that the business has a plan in place to protect against the loss of key people can provide peace of mind to employees. It's also handy for attracting new talent.

  • Business confidence: Having key person cover can also boost confidence amongst stakeholders, such as investors, lenders, and clients. Knowing that the business has taken steps to mitigate the risk of losing a key individual can instil trust and confidence in the company's ability to continue operating successfully.

How much does key person life insurance cost?

When it comes to the cost, understand that there is no fixed price per person. Instead it will vary depending on the provider and circumstances of each person. This is because it's a form of underwriting, where insurers assess the risk involved in insuring a person.

Insures will also look into each person's age, current health and medical history. Doing so helps them determine the level of risk. The higher the risk, the higher premiums are likely to be.

If you're looking to protect your employees or a key person in your business, the first step is to weigh-up your options.

By speaking to one of our advisers, you can get a better understanding of the different types of life insurance and determine which is suited best for your business. Reach out today to get the advice you need.

Speak to the experts...

Give our advisers a call today.

Our team of friendly and professional advisers are on hand to help with any questions you may have regarding Life Insurance.

The advisers can also make recommendations tailored to your current situation and will research the market on your behalf, ensuring you secure the cover you need and supporting you every step of the way. 

01392 43 61 93(Monday to Friday, 9am - 5.30pm)

Request a callback

Apply with advice

Does Life Insurance affect your Credit Score?

Prev article

How to check if your loved one had life insurance

Next article