Key Person Protection

As a business you understand the need to manage the risks you face everyday – insuring stock, equipment and transport against fire, flood and theft. But most don’t cover their most valuable assets – their people.

Is there a need for key person protection?

When business owners are asked what business or partnership assets are insured they always list their premises, plant and machinery, vehicles, computer equipment and so on. They recognise that cover is required for the cost of replacement, potential loss of profits and ultimately to minimise any business disruption.

However, what could happen to the business if a key employee, partner or proprietor were to die or become critically ill? The cost to the business could be devastating. Consider for example the sudden death of the head engineer when the business is in the process of tendering for a major project. Their death could result in the loss of that contract which may be critical to the future survival of the business.

Who is a key person?

A key person is someone whose death, critical illness or disability would have a serious effect on the future profits of the business. In any given business a number of people could be regarded as “key” including the partners, senior employees or the proprietor, in the case of a sole trader.

Although the number of key individuals may vary from one business to another, there will always be at least one key person in any given business. The obvious choice of key person will normally be some or all of the partners in the business. However, clients should also consider the impact on the business of losing someone who although they may not have any financial stake in the business, nevertheless playa fundamental role in its success. You need to determine key people by asking:

  • How easily could the business replace their expertise?
  • Would their absence affect business expansion plans or ongoing projects?
  • Would the business be in danger of losing customer orders?
  • Would it result in a loss of goodwill or hardening of suppliers’ credit terms?
  • Would the business miss their administration or management contribution?
  • Are there any loans or overdrafts dependent upon the key person?

If you would like any further information or to speak to one of our advisers please contact us here.

These plans typically have no cash in value at any time and cover will cease at the end of the term.  If premiums stop, then cover will lapse.