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Key Person Cover

Key Person Cover to protect profit

Losing a key person can be disastrous for the long-term survival of a business, large or small. Although clients can’t predict the future, Key Person Cover can protect against unexpected costs resulting in risky and drastic measures being taken.

The example below shows how Key Person Cover can be used to help clients who want to secure future profits if something happened to one of their key employees. Please note that this is an example only and is not based on a real company.



Windsor Agricultural

The owners want financial protection if Steven, who is vital to the business, were to suddenly die or be diagnosed with a serious illness.



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Scenario 1

The company takes out Key Person Cover on Steven's life to protect profit: £500,000.

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  1. Steven has a stroke and takes early retirement.
  2. The £500,000 benefit covers the sudden loss of profits, and pays for a number of new sales people.
  3. Windsor Agricultural Supplies Ltd continues trading and making a profit.
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Scenario 2

The company doesn't take out Key Person Cover.

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  1. Steven has a stroke and takes early retirement.
  2. The company doesn't have the budget available to cover the sudden loss of profits, or hire new sales people.
  3. The company has two options:

  4. Take out a business loan and risk default.
  5. The business doesn't recruit replacement staff, putting the business at real risk of closure.


  • The business is expanding into new offices.
  • Single key person integral to maintaining customer relationships.
  • Risk to cover is two times net profit worth £500,000.

Windsor Agricultural Supplies Ltd is a well-established distributor of farming supplies based in Berkshire. After trading for twelve years the company now employs a team of six and has been able to purchase their trading premises outright. Over the coming year’s owners Steven Jones and Tom Collins plan to open additional premises in Pembrokeshire and Yorkshire, and are already in the process of finding sites to trade from.

Steve has an agricultural background and the knowledge to credibly deal with influential customers and suppliers, he also writes articles for a number of relevant publications. Tom is focused on the day-to-day logistics of the business, ensuring bills and salaries are paid on time, and stock is where it should be.

Key Person Cover solution

During a meeting and risk review with their financial adviser, using our Business Risk calculator and Key Person calculator it becomes clear that while Tom is clearly important to the running of the business, without Steven, they would struggle to maintain some of their important customer and supplier relationships, and the company’s profile and reputation would undoubtedly slip if they stopped appearing in the industry press. Tom was also concerned that without Steven he would find it very hard to continue with the planned expansion of the business, and the reduced level of trading would force him to lay off staff. In short, the two shareholders felt that while they were both important to the business, Steven would be vital over the coming years and without him the business would struggle to fulfil its potential – they realised he was a key person.

The company take out key person cover on Steven for £500,000, paying out on his death or diagnosis of a critical illness. The level of cover was based on 2 x net profit (apportioned for the % Steven is considered to be directly responsible for).

Unfortunately, 18 months later Steven suffers a major stroke with severe permanent disabilities. He’s unable to return to work for the foreseeable future. After an initial period of instability Tom was able to stabilise the business, return profits to the level they were at before and complete the expansion of the business. This was made possible because of the £500,000 claim paid to protect the company’s profit. The money enabled Tom to meet his short term obligations (wages, costs of stock etc.) and also deal with the loss of a number of key customers to competitors. He’s also able to hire a number of well-respected sales people who shared some of Steven’s skills and knowledge and are able to begin the job re-building a strong client base. He was also able to engage a PR firm to maintain the company’s presence in the industry press now that Steve was no longer available as a commentator.

Two years after Steven’s stroke, Tom was able to complete their expansion plans and Agricultural Supplies Ltd now employs 18 people across three locations. More importantly, he was able to deal with the loss of a key individual without having to compromise the integrity of the business and take any painful cost-cutting measures such as making staff redundant or even having to wind the business up.

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