Your Questions Answered
Confused about cover? Discover the answers to some commonly asked questions
What is Key Person Insurance cover?
Key Person Insurance - often called Key Man Cover - is an insurance policy bought and owned by a business to protect its own interests. Cover is provided in the event that an important staff member is suddenly unable to work through critical illness and/or death.
If a key person dies (or is diagnosed with a terminal illness with less than two months to live) or, optionally, suffers a serious or critical illness, then the business gets a cash lump-sum.
- Premiums are paid by the business.
- Proceeds are paid to the business.
- Policy protects the business, not the individual.
Think about it this way:
We don't always realise that our businesses rely heavily upon the skills, contacts, or experience of particular individuals.
Because even though many roles in our businesses can easily be filled, other positions require specialised skills, decades of experience, or specific qualifications.
Finding people who fit the bill and who suit our companies is challenging. Recruiting those people (who are often in high demand) takes time, effort... and money.
Protecting your business interests with Key Man Cover can mean there's less pressure to rush through the recruiting process and get the business operating normally again.
That's because lost profits are covered while you recruit and train a replacement, so you can take the time needed to make sure your business is in exactly the same position as it wasbefore the loss of a key staff member.
Think about it this way:
According to independent research conducted by Legal & General (2011), 39% of company directors think that their businesses would fold within 18 months if they lost a key staff member to death or critical illness.
And even though you'll insure the building and physical assets your business relies on, too many companies neglect to insure the most vulnerable asset of all - the key people without whom your bottom line will suffer.
6 Things Key Man Cover Protects Your Business From...
- Lost profits.
- Development finance lost because a key team member is no longer involved.
- The repayment of loans may become more difficult.
- Detailed or specialist knowledge of processes and systems vital to your business can be lost.
- The goodwill of customers or suppliers can be damaged.
- Key accounts and clients can be lost to competitors
Who is a Key Person Anyway?
Research by Legal & General in 2011 showed that 95% of businesses have at least one 'Key Individual'. Think about it for a moment, and you might have more key people than you think...
- Specialised Engineers
- Creative Talent
- Skilled Manufacturing Operators
- Operations Directors
- Sales Directors
- Board Chairmen/women
- Wealth Managers
- Top Salespeople
- Medical or Scientific Experts
- Anyone you think you'd struggle to replace...
How does a Key Man Insurance policy work?
The policy itself is owned and paid for by the business. The life of a particular individual in the company is underwritten by the insurer. You'll have a separate policy for each key person.
Here's how the claim process works:
- Step 1: A Key Person in your business is diagnosed critically ill, or dies unexpectedly.
- Step 2: The business submits the claim to the insurer, along with any supporting evidence (such as a copy of death certificate or medical report)
- Step 3: A lump-sum, equal to the value agreed when the policy is taken out, is paid direct from the insurer to the business.
- Step 4: The money received can be used however the company wants.