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Protect your clients' business against loss of a key individual

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.

Features included as standard

  • Pays a cash lump sum if they key person insured dies
  • Terminal illness cover included at no extra cost
  • Guaranteed premiums

Options

  • Critical Illness cover
  • Level, decreasing or Inflation-linked cover
  • Waiver of premium

Product profile

A summary of the relevant product information, in accordance with the Insurance Distribution Directive.

  1. Life Insurance product profile
  2. Critical Illness product profile
  3. Waiver of premium product profile

Additional services

  • Access to the LV= member helpline gives 24/7 access to health advice, counselling services and expert legal advice
  • LV= Doctor Services which gives gives your clients access to 3 expert medical advice services through one handy app wherever they are
  • LV= Business Care which gives your clients free access to legal and tax experts available at the end of the phone, when they need them

A closer look...

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.

If the key person insured is diagnosed with a terminal illness, their priorities may change and could decide to stop working and concentrate on the things that matter to them the most- family, missed life experiences or even just be too unwell to work. When this happens we'll pay the sum assured early.

What is a terminal illness?

This is an incurable illness, where in the opinion of an attending medical consultant and our Chief Medical Officer, they would not be expected to live for more than 12 months.

The premium is guaranteed. This means we won’t change it unless you ask us to change the policy or, unless you inflation-linked cover has been chosen.

Inflation-linked cover your cover will increase by inflation each year and premiums will increase by inflation multiplied by 1.5.

All of our features are covered in full in our policy documentation.

Details

Life Protection

Life and Critical Illness cover

Waiver of Premium

Additional features

N/A

  • Children's critical illness cover
  • LV= Legal & Wellbeing line
  • Business Protection cover

N/A

Type of pay-out

Lump sum

Lump sum/s including our additional payment claims

Pays your plan monthly premiums after the waiting period

Types of cover

Level/inflation-linked/decreasing

Level/decreasing/inflation-linked

N/A

Term

Between 5 and 45 years

Between five and 40 years

Age 69 or the end of the plan term if earlier

Minimum age attained at entry

17 years

17 years

17 years

Maximum age attained at entry

59 years

59 years

59 years

Maximum age attained at end of policy term

84 years

69

69

Minimum premium

£5 a month

£5 a month

Based on the total plan premium

Waiting period

None

N/A

6 months

Eligibility criteria

Your client must be a permanent UK resident

Your client must be a permanent UK resident

Your client must be a permanent UK resident

Number of Critical Illnesses covered

N/A

87 (20 of these conditions are covered under 1 additional payment condition – ‘Less advanced cancers’)

N/A

Cover by business type

Key Person Cover should be set up differently to match the needs of different business types. The table below can help show how Key Person Cover is best applied and how to get the most out of our policy.

Who should be insured

Business owner or key member of staff

Benefits (separate policies should be set up to protect profits or clear debt)

If the key person is an employee (not the business owner) the cash injection helps the company protect profits or clear existing debt.

How to set up the cover

Own life: the sole trader takes out the plan which is written in trust with their family/next of kin as the beneficiaries. If the sole trader dies, the money is paid to the beneficiaries (usually family or next of kin).

Life-of-another: sole traders can also take out Key Person Cover on an employee. The sole trader takes out the policy on a ‘life-of-another’ basis. Any claim is then paid directly to the sole trader.

Who should be insured

Partner or key member of staff

Benefits (separate policies should be set up to protect profits or clear debt)

If one of the partners dies or has to take early retirement due to ill health, the remaining business owners would be responsible for any debt. Key Person Cover can be used to pay off the debt or keep the business operating.

If the key person is an employee (not the business owner) the cash injection helps the company protect profits or clear existing debt.

How to set up the cover

Own life: if the key person is a partner, the plan is on their own life, written in trust for all the partners. Any claim is then paid to the remaining business owners (through the trustees).

Life-of-another: if they key person is an employee, one of the partners takes out the policy on a ‘life-of-another’ basis, placed under trust for the benefit of all the partners.

Who should be insured

  • Shareholder, or key member of staff
  • Partner or key member of staff

Benefits (separate policies should be set up to protect profits or clear debt)

The proceeds give the company a cash injection, which can be used to either:

  • protect profits
  • clear debt

How to set up the cover

Life-of-another: the company takes out the policy on a ‘life-of-another’. If a claim’s made, the money is paid directly to the company.


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

Once you've helped your client identify their key people, you need to recommend a reasonable amount of cover for the Life Insurance policy 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.

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.


Case studies

Losing a key person can be disastrous for the long-term survival of a business, large or small, and although clients can’t predict the future, Key Person Cover can protect against being unable to repay creditors and investors.

The example below shows how Key Person Cover can be used to help clients who want to secure the repayment of a business loan 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.

Nicole

Nicole
Employee/Key Person

MN Engineering LTD

The company takes out a business loan and the shareholders want financial protection to help them pay back the debt if Nicole, who is key to sales, were to suddenly die or be diagnosed with a serious illness.

Mark and Sam

Mark and Sam
Shareholders

green arrow pointing down
Green tick in a circle

Scenario 1

The company takes out Key Person Cover on Nicole's life to cover debt repayments.

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  1. Nicole is involved in a car accident and dies.
  2. The company makes a claim and the £150,000 benefit is paid straight to the business.
  3. The money is used to clear the business loan.
  4. The proceeds give the company (and owners) the breathing space and time they need to come to terms with the loss to the business and find Nicole's replacement.
Red arrow pointing down
Red cross in a circle

Scenario 2

The company doesn't take out Key Person Cover (for debt).

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  1. Nicole is involved in a car accident and dies.
  2. Sales are impacted immediately and the company are unable to pay back the loan.
  3. The bank calls in the debt and instruct the company to pay back the loan in full.
  4. The company are unable to pay back the loan in full.
  5. The business ceases trading.

  • Clients - Mark and Sam
  • Joint shareholders in a limited company
  • Business loan of £150,000
  • Single key person integral to new business

Mark and Sam are shareholders at MN Engineering Limited, a growing business specialising in high precision components for the defence and automotive sectors. They both manage the day to day running of the business and also employee a sales manager, Nicole, who brings in the majority of new business. They want to expand and invest in more equipment but due to a lack of available funds, they need to take out a business loan of £150,000.

Mark and Sam realise how important Nicole is to the company’s long-term survival and understand if she were to die, or be diagnosed with a serious illness, the business would be at real risk of defaulting on the loan due to the impact on the business Nicole brings into the company.

Concerned, they speak to their financial adviser who, after checking the LV= Business Risk calculator recommends that they take insurance to cover the loan. They take out Key Person Cover for £150,000 with LV= (which equals the original amount of money lent by the bank) on a ‘life of another basis’ with MN Engineering Limited as the policy owner. LV= would pay the cover if Nicole dies, or is diagnosed with a critical illness shown in the policy conditions.

In this example, Mark and Sam felt they didn't need to protect future profits. To find out more read our case study for small business profits below.

Steven

Steven

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.

Tom

Tom

green arrow pointing down
Green tick in a circle

Scenario 1

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

green arrow pointing down
  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.
Red arrow pointing down
Red cross in a circle

Scenario 2

The company doesn't take out Key Person Cover.

Red arrow pointing down
  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.

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.

Great reasons to choose LV= for Key Person Cover

Strong claims performance

Making sure your client has a successful claim is as important to your client as it is to you. Your clients get vital financial help when they need it most and you feel confident in the provider you recommended.

We’re proud of our performance with 99% across our Life products* and 88% of Critical Illness claims paid in 2019. The average amount paid for a Life insurance claim was £59,609 (excluding our 50 Plus whole of life product), and the average for a Critical Illness claim was £71,296.

*Our Life Insurance figures include claims paid for our Life Insurance, Terminal illness, and whole of life products. Our whole of life products are no longer available.

Better underwriting

We know advisers are not usually medical experts so we help out as much as we can. This means you can concentrate on providing the best financial advice for your client.

  • We have no standard exclusions on our income protection plans making it straightforward to explain to your client.
  • Our online application system is powered by a strong, intelligent underwriting rules engine which means that you're more likely to get an instant decision.
  • We have flexible medical examination arrangements. If your client needs a medical examination, we could send a nurse to visit them at home or work or use a medical examiner at a convenient location.
  • We pay for medical underwriting (except medical certificates such as sick notes).
  • We have a dedicated underwriting hotline to help you iron out any potential issues your client may have.
Value add services

LV= Doctors services

LV= Doctor Services gives your clients access to six medical services via one simple app or phone call:

  • Remote GP
  • Prescription Services
  • Second Opinion
  • Remote Physiotherapy
  • Remote Psychological Services
  • Discount health MOTs

Member benefits

Every client who takes out one of our personal or business protection and retirement products will agree to become a member of LV=. This means they are entitled to a range of added benefits and support. These include free and unlimited access to our 24/7 confidential member helpline and discounts on a number of LV= insurance products.

Our LV= member helpline gives you 24/7 access to health advice, counselling services and expert legal advice.


LV= Business Care

LV= Business Care is designed for small business owners and is available as soon as your client takes out LV= Business Protection cover. Our service gives your clients free access to legal and tax experts available at the end of the phone, when they need them.

Our service offers advice in two key areas, Legal and Tax;

Business legal advice

Direct access to legal experts specialising in business and commercial law; covering areas such as;

  • Employment law and tribunal claims
  • Health & Safety law and requirements
  • Disputes including tenancy and debt recovery
  • Commercial and contractual disputes

Advice is available 24 hours a day, 7 days a week

Business tax and VAT advice

Direct access to business tax and VAT experts made up of accountants and ex HMRC employees, covering areas such;

  • Tax and VAT relief
  • Completing a self-assessment return
  • Current and changes to tax rules
  • Dividends paid from limited companies
  • Receiving a tax investigation notice

Advice is available Monday-Friday 9am-5pm

When setting up key person cover we recommend that you use our Business Risk calculator to bring to life the likelihood of health issues affecting key people within the business and the subsequent financial impact. Our Key Person Cover calculator will help you in recommending the correct amount of cover for each key person.

Suitability wording

We’ve produced a range of template paragraphs that are designed to describe generic features of each type of policy, as well as the specific benefits of our own products. You can use and adapt these paragraphs to help construct your own Suitability Letters.

Use the drop down menu to select the relevant section, then copy and paste it into your suitability letter.

 

A good suitability letter is:

  • your opportunity to justify and reinforce the reasons for your advice and recommendations
  • an excellent opportunity to document unmet and future needs and the importance of ongoing review discussions
  • your record of the discussions held and the recommendations made/not made and why

It should be clear, fair and not misleading. It should be personal, explain the reasons why a recommendation has been made and how it meets the customers needs and objectives. It should highlight any risks involved.

LV= has taken care to ensure the accuracy of the information at the time of issue but does not accept liability resulting from your use of it.

Calculators

Choice calculators to support your discussions

Losing a key person at any time can really disrupt a business, but even more so when it's unplanned, or happens suddenly. This calculator uses a key person's contribution to the business profits to help you work out the right amount of cover.

This calculator helps your clients understand the likely risks of health issues affecting the key people within the business (individually and as a group), as well as the financial impact each person could have on the business.

How we use personal information. Find out how we use your personal information, and what rights you have by visiting How we use your personal information. This includes who we are, how long we hold information, what we do with it and who we share it with.

Underwriting support

Pre-underwriting helpline

Go straight through to our underwriters who can quickly answer questions like exclusions or loading.

Email: [email protected]
Call: 0800 678 1893
8:30am to 6:30pm Monday to Friday
TextDirect: first dial 18001

Tele-interview service

Our underwriters may need more information about a particular disclosure.

Our team of friendly, fully trained UK based tele-interviewers, will call your client to gather details of their health and medical history so we can assess their application. This usually takes between 20-30 mins.

You can read our Tele-interview guide to help prepare for ain interview.

Tele-interview booking service

You or your client can book a tele-interview appointment with us directly online within 30 mins, without having to contact our new business team.

  1. It's usable as soon as you have the policy number.
  2. It shows all of the appointments available.
  3. You can book appointments as early as an hour after submission or up to seven days in advance.
Pre-underwriting tool

What is it?

Our Pre-Underwriting Tool, part of Fastway, allows you to enter illnesses and conditions (disclosures) giving instant, indicative underwriting decisions at any time.

Where to find the tool

  1. Log into Fastway
  2. Choose "New Pre-UW Enquiry" at the top of the page
  3. Refer back to the decision by accessing the record’s unique ID in your Fastway dashboard
Underwriting and financial limits

Life Insurance underwriting limits

Age next birthday

PSR*

Cotinine**

GPR

ME

HIV

BIOCHEM

PROF

HbA1c

EXECG

To age 35

£750,001

£900,001

>£1m

>£2m

>£1.5m

>£2m

N/A

N/A

>£7.5m

36-40

£600,001

£900,001

>£1m

>£2m

>£1.5m

>£2m

N/A

N/A

>£7.5m

41-45

£500,001

£800,001

£750,001

>£2m

>£1.5m

>£2m

N/A

N/A

>£5m

46-50

£400,001

£700,001

£600,001

>£1m

>£1.5m

>£1m

N/A

N/A

>£4m

51-55

£250,001

£550,001

£400,001

>£1m

>£1.5m

N/A

>£1m

>£1m

>£3m

56-60

£200,001

£450,001

£300,001

£750,001

>£1.5m

N/A

>£1m ***

>£1m

>£2m

61-65

£100,001

£250,001

£150,001

£500,001

N/A

N/A

>£1m ***

>£1m

>£1.5m

Over 65

£75,001

£150,001

£100,001

£250,001

N/A

N/A

>£1m ***

>£1m

>£1m

* PSR not required if ME required. ** Cotinine required on non smokers only. *** PSA included

Make a claim

Making a claim on behalf of your client

You can contact us in the following ways to notify us that your client wishes to make a claim;

  1. phone: 0800 756 5869
  2. email: [email protected]
  3. post: LV= Health Claims Team, Emperor House, Grenadier Road, Exeter Business Park, Exeter, EX1 3LH

The information we need

For most claims, we’ll send your client a claim form. This should be completed, and include the name and contact details of your client's GP or medical specialist, as well as any supporting medical or financial evidence requested in the claim form. We may also ask for:

  • Basic details of the reason your client is unable to work.
  • Financial evidence as detailed in the claim form.

Paying the claim

  1. We’ll keep your client (and you) informed throughout the claim.
  2. We'll contact your clients GP or medical specialist directly to follow up on any outstanding requests for medical evidence.
  3. We’ll let your client know if there’s anything they can do to speed up their claim payment.
  4. We’ll normally pay the claim within 48 hours of receiving all the required evidence and making a final decision.
  5. We offer your client free access to a medical second opinion from one of the UK’s biggest networks of medical professionals through LV=’s partner Square Health.
Claims performance

99%* of all new Life Insurance claims were paid in 2019

Here at LV=, we offer a clear and fair approach to paying claims, as we believe anyone can be affected by long-term illness – regardless of age or lifestyle. Take a look at our full 2019 claims performance.

Protection summary 2019

Life**

Critical Illness

Total value of claims paid

£38.8m

£23m

Average annual benefit/payment

£59,609

£71,296

Highest annual benefit/payment

£584,000

£534,775

Policy in force duration

9 yrs 5 mths

7 yrs 6 mths

Ave. age customer at claim

Life*

Critical Illness

Male icon

Male

72

51

Female icon

Female

73

47

An icon of a man and lady

Youngest customer

28

29

*Our Life Insurance figures include claims paid for our Life Insurance, Terminal illness, and whole of life products. Our whole of life products are no longer available.

** The figures in this table exclude our non-underwritten whole of life policies.

Telephone icon

Contact us about Key Person Cover

Quotes and questions: 0800 678 1890

FOR UK FINANCIAL ADVISERS ONLY
LV=, County Gates, Bournemouth, BH1 2NF, UK