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Work out individual key person requirements using our simple tool

Customer friendly video explaining why Key Person cover is important

Key Person Cover

A quick guide to Key Person Cover

This cover provides a financial safety net if a key member of staff dies or is diagnosed with a serious illness (if Critical Illness Cover is also selected). The claim is paid directly to the company or partners, allowing breathing space to help keep the business trading as normally as possible.

Who is a ‘key person’?

This is any member of staff who has a direct impact on the business’s profits. It could be the business owner, director, sales person or any employee with specialist skills or expertise.

How to position Key Person Cover with clients

Losing a key person can be disastrous for the long-term survival of a business. Although clients can’t predict the future, Key Person Cover can protect against the following business risks:

Protect profits

  • Recruitment costs to find a suitable replacement
  • Loss of profits whilst the business is disrupted
  • Paying penalties for non or late delivery on goods and services
  • Paying any company sick pay to the key person if the claim is related to a critical illness

Protect debts

  • Being unable to repay a loan
  • Paying back a business overdraft
  • Nervous suppliers may demand payment of an account up front
  • Covering owed salaries, dividends or loaned money through a director's loan account
  • Key Person Cover can protect sole traders who are personally liable for business debt. If they died expectantly, any debt would be inherited by their next of kin.

Setting up the cover depends on the legal structure of your client’s business. See our guide on ‘cover by business type’ for inspiration.

Taxation

Tax treatment on the premiums and proceeds depend on why the cover is being set up. It’s therefore important to have separate Key Person Cover policies to protect profit and ensure debts can be paid.

Find out more on tax treatment for Key Person Business Protection.

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LV=, County Gates, Bournemouth, BH1 2NF, UK