Key Person Protection
The financial strain of the loss or absence of a key person soon makes itself felt; reduced productivity, loss of hard-to-replace skills, delayed contracts, a dwindling of confidence among clients and banks. For smaller businesses the effects can be disastrous. Key Person Insurance is there to provide security, peace of mind, and continuity at a difficult time.
Who is a Key Person?
The employee whose contribution to the business makes a difference to its financial success. If you find it hard to imagine running the business without a particular individual, you have identified your key person.
What is Key Person Insurance?
It covers the long-term absence if a serious/critical illness occurs, or death of a key employee, in the form of a payment to your business. This payment helps you to provide continuity, maintain profits, and recruit a replacement for the role.
Who needs Key Person Insurance?
All businesses. Even the largest organisations may have someone they rely on more than others, whose day-to-day input makes them pivotal to the business’s continued success. Smaller businesses are heavily dependent on their people too; the smaller the pool of talent and expertise, the more vulnerable a business may be to the loss of one employee.
I’m a sole trader. Do I need this type of cover?
Yes. Unlike personal life insurance, Key Person cover is there for as long as you need it to preserve your business so that it can keep going without you if you fall ill. Since sole traders are responsible for their business debts, it is wise to have cover that protects your family from the financial consequences of illness or death.
How is the amount of cover needed calculated?
Insurance providers calculate cover according to a general set of rules. Most take into account a multiple of gross or net profit or a proportion of the key person’s net contribution to profits. It also varies according to your business; cover for new companies may relate to new borrowings and projected profit, while cover for more established concerns may include the cost of training and recruitment to replace a key person.
How much is it likely to cost?
There are several considerations: the level and term of cover you need, the keyperson’s age and health when you apply for protection, whether or not they smoke – everyone is different. The exact cost of cover will be available once terms have been issued by the Insurer.
How long should we cover our key person for?
It depends on your business, and who your key person is? Key Person Insurance is considered a short-term insurance if it is taken for five years. Longer-term cover will affect the premium. We will talk to you to help establish your requirements and devise a cost-effective plan that suits you.
Is Key Person Insurance tax-deductible?
Usually. If HMRC criteria are met, premiums can be classed as a business expense. We make sure that you are aware of the tax implications of any policy you take.
How can Activ Consulting help us?
Because this is a complex area, Key Person Insurance is offered by only a handful of companies. Activ Consulting has long-standing relationships with these organisations, and works with you to quantify how much key person cover your business needs. As an independent, Activ Consulting is well-placed to offer competitive rates.
