Key Person Insurance

What is key person protection?

Key person protection, sometimes known as key man insurance, is in place to protect your business against the financial loss of key personnel. Life insurance will be written to cover the life of a key worker who is responsible for significant revenue generation to ensure a cash injection for the business should they be lost through a critical illness or death.  While every member of your business has their own role to play that is difficult to replace, there are certain key personnel whose absence has an immediate financial impact on the running of your business. 

When you work with your key personnel every day, it can be difficult to really understand just how important they are to your business. Research has found that 46% of businesses in the UK would have no choice but to stop trading immediately if they lost a key member of their team, either through long-term illness, sudden injury or death. We’ve got more stats in our what is key person insurance? article.

Losing a key member of your team is always emotionally difficult for a business and can be an incredibly stressful, worrisome time. Looking at key person insurance will at least ensure your business is able to financially recover and maintain stability for other team members.

Why does your business need key person protection? 

One of the most important assets a business has is its employees. After all, your staff bring specialist skill and knowledge, experience and industry contacts that cannot be replicated. These key people are absolutely essential for profit making and losing them would have a massive financial impact on your business. This makes having key person protection essential.

Losing a key member of your team would result in your business suffering significant financial damage, including a reduction in profits, the inability to fulfil critical commitments and the cost of recruiting a suitable replacement. Key person insurance is designed to give you cover if key personnel in your business suffer from a critical illness that means they’re unable to work, or in the worst-case scenario pass away. It provides peace of mind for all business owners.

Just as we routinely insure key assets, such as property and machinery, it is extremely important that key personnel are also taken into account for the survival of your business. At Francis Clark Financial Planning, we offer varying levels of key person protection for your business. 

What levels of key person insurance are available?

There are multiple levels of key person protection, and it’s important to determine what level of cover is right for you.

You can work out what key person insurance is needed in a number of ways:

  • Calculate the salary of your key personnel as a percentage of your businesses total payroll. You then multiply this by sales turnover and multiply this number by the number of years you forecast it will take the business to recover.
  • By using a multiple of the key person’s total remuneration package, often a multiple of five times is used. This will not take into consideration the key person’s contribution to your businesses overall turnover.
  • In smaller businesses with only one key member, or when there are only a very small number of team members considered key personnel, a multiple of the businesses profits can be used. It’s most common to use a rate of two times gross profit. 

If you choose to work with PKF Francis Clark Financial Planners to organise your key person protection, we will be able to work with your business closely. This will give us all the tools we need to make sure we can recommend the right level of cover for your needs and the best way to calculate it. Safeguard your business today with key person insurance.

How does key person insurance work?

Key person insurance can cover against a multitude of situations so you need to decide what your business thinks is worth insuring.

  • Life assurance only: this only covers the death of a key person and won’t cover critical illness or injury. 
  • Life assurance and critical illness cover: This will cover critical illness or any injuries that stop your key personnel from being able to work and contribute to the business, as well as cover the death of key personnel.

Once you have organised the appropriate level of key person protection for your business, in the unfortunate circumstance you need to, you will be able to make a claim. Losing key personnel is always difficult for any business, but taking out the right key person insurance helps to mitigate risks and provide a level of stability and relief to the company during this difficult time. 

Business protection from Francis Clark

In addition to key person insurance, we provide advice on a number of business protection solutions. If you have more questions about key person protection and would like to know how it can help your business, a member of our team would be more than happy to assist you. Call us on 0800 832 1785 on weekdays 9-5, or drop us an email anytime at [email protected] where someone will get back to you as soon as possible. 

If you’d prefer an in-person meeting, we have a number of offices across the South West of England. You can visit our contact page to find out more about our offices and directions.

Why choose Francis Clark Financial Planning?

Choose Francis Clark Financial Planning for key person insurance with unmatched expertise and personalised solutions. With a team of experienced financial professionals that go beyond standard offerings, we understand the intricacies of your business and financial objectives. Our commitment to crafting tailored key person protection plans ensures comprehensive coverage, minimising financial risks associated with the loss of key personnel. 

Contact our expert team today, and book a consultation.

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To book your initial consultation (no cost or obligation), please fill in the form below with your details and one of our financial planning experts will be in touch.

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Key Person Protection FAQs

  • What does key person insurance cover?

    Key person protection provides a business with a financial cushion in the event of the death or disability of a key person. The proceeds can be used to cover financial losses that may result from their absence, such as the cost of finding and training a replacement, compensating for lost business opportunities, or paying off debts.

  • Who is eligible for key person insurance?

    Key person insurance is typically purchased for individuals whose skills, knowledge, experience, or leadership are crucial to the success of a business. This could include executives, founders, or individuals with specialised expertise. Eligibility is determined by the impact the person’s absence would have on the company’s operations and financial stability.

  • How does key person insurance differ from other types of business insurance?

    While traditional business insurance policies cover property damage, liability, and other general risks, key person insurance specifically addresses the financial impact of losing a key individual within the organisation. It is a form of life and disability insurance tailored to protect the business rather than the individual. Key person protection helps to ensure continuity, stability, and financial resilience in the face of unexpected events involving key personnel.

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