Need keyman / key person insurance help?

Protecting employees with keyman insurance is a great way to protect your business. But if something bad was to happen to one of your key members of staff, would your business suffer?

What is keyman insurance?

Keyman insurance / key person insurance covers key members that your business relies on.

Past research has shown that if a key business member was to fall ill or die, a business would fail. Sometimes there are no warning signs as accidents can happen such as car crashes or other unexpected events. To prevent this, keyman insurance or keyman cover covers a business from any potential lost profits, loan repayments and can also help with the costs of replacing a staff member or director who is crucial to business operations.

Protecting key members of staff is a great way to protect your business and also make that staff member feel more valuable to the business, which gives you both peace of mind.

Who is a key person in the business?

You can often determine who is a key person by asking:

  • Are there any loans or overdrafts that depend on the key person?
  • Would their absence affect business expansion plans or ongoing projects?
  • Is the business be in danger of losing customer orders?
  • Could it result in a loss of goodwill or hardening of suppliers’ credit terms?
  • Will the business miss their administration or management contribution?
  • Are there any loans or overdrafts that depend on the key person?
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Covering the costs of business loans

When taking out a business loan, keyman insurance often gives the lender reassurance as it will cover the repayment of the debt if a person crucial to the business passes away.

Keyman insurance doesn’t just cover the death of a key member of staff, but will also payout if they fall critically ill or develop a long term disability which prevents them from working.

The insurance will help fund the salary and temporary replacement of a key staff member who needs time off work.

When it comes to critical illness, it’s important to check what the policy actually covers before taking it out. Not all insurances will offer full cover.

You may need to check what the policy actually covers before taking it out, we can help you with this and find the right insurer for you.

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What type of keyman cover should I take?

The type of cover you take out for your key members of staff will depend on a number of factors. This includes the key person’s yearly salary. As a general rule, multiply the key staff members’ salary by 5, if they earn £60,000, your keyman insurance should ideally cover £300,000. If they earn £100,000 per year, their policy should cover you for £500,000.

Is key person cover tax deductible?

The taxation of key man, or key person insurance as it is now often referred to, is by no means straightforward. Unfortunately, not all companies are treated equally when it comes to the way HMRC will tax the premiums or any payouts on a claim made.

The tax treatment of key person insurance will depend on the core reasons for taking out the policy and on who it is there to protect.

If an employer insures their business against loss of profits due to the death, critical illness, accident or injury of an employee, director, or other key people, the premiums may be tax-deductible if:

  • The sole purpose of the insurance policy is to meet a loss of trading income from the loss of that key person. Not a capital loss to the business
  • If the insurance is a term insurance policy providing cover against the risk of one or more key lives within the term of the policy, and no other benefits. It’s also important that the insurance term should not exceed the key employee’s usefulness to a company

Unfortunately, Any premiums paid for whole life or endowment policies, or critical illness and accident policies with investment content, will be deemed as capital expenditure and will not be tax-deductible.

How much is key person cover?

The amount you pay will depend on different factors.

  • The salary of the key person
  • Age of the person, if they smoke
  • Amount of cover you’re looking for
  • The term you want the cover for
  • Previous medical history *

* Previous medical history can cause an increase, but often it’s down to a high BMI (Body Mass Index) or raised blood pressure.

Many key person quotes are subject to underwriting which means the premiums could go up before terms are issues. An increase in premiums could occur if the key person’s health changes.

We can discuss these different types of cover and business insurance. 

How can 360 Protect help?

We understand business insurance very well. Therefore we can advise and explain keyman cover and help you find the right cover for your employees. We will help you understand and direct you to the best insurers based on what cover your employee requires.

We’re not a sales site or an insurer. Therefore we will only give you impartial advice to help save you time and give you peace of mind that your key staff members are protected.

To get advice about which insurance is best for your business, please get in touch.

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