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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

How much cover?

Once you've helped your client identify their key people, you need to recommend a reasonable amount of cover for the Life or Life and Critical Illness policy. There are a number of options you might want to consider as well as using our Key Person Cover calculator.

The following options are suggestions and will depend on individual circumstances.

Multiple of profits (to protect business profit)

  • Decide whether to base this on gross profit or net profit. As a guide you could consider either 2 x gross profit or 5 x net profit.
  • Normally you would look to use gross profit for key people who directly influence money coming into the business (such as sales staff).
  • Normally you would look to use base net profit on key people responsible for managing cash flow (such as a managing director).
  • Where there’s more than one key person, you need to split the cover according to each person’s contribution.

Multiple of salary (to cover replacement/recruitment costs)

  • As a guide, suggest cover between 7-10 x gross salary for key people who don’t own the business.
  • You might want to also include employment benefits (car allowance for example).

Loan security (to pay off debt)

You can base the cover on any loans, business overdrafts and other relevant lending.

Recruitment costs

  • Look at the cost of recruiting and training a replacement, as well as how long it would take for them to get up to speed in the role.
  • There will inevitably be a delay between the replacement arriving and making an appropriate contribution to the profits.

Business start up

It can be trickier to work out how much cover to recommend to a new business. One approach is to look at the working capital at risk compared to the key person's proportion of this risk. Feel free to contact our underwriters for further guidance.

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