Protecting your business 

A key person is an individual whose absence would have a significant negative impact on your business. This could be a founder, managing director, sales director, or any other employee who is crucial to your operations.

Key person cover is an insurance policy designed to protect your business financially if this person dies, becomes critically ill, or is unable to work due to disability.

Why is key person cover important? 

• Financial protection: The loss of a key person can lead to a significant drop in revenue, increased costs, and even business failure. Key person cover provides a lump sum payment that can be used to cover these costs, ensuring your business can continue to operate smoothly. 
• Business continuity: The policy can help fund the recruitment and training of a replacement, minimising disruption to your operations. 
• Debt repayment: If your key person is a guarantor on a business loan, key person cover can help repay the debt if they are unable to fulfil their obligations. 
• Investor confidence: Demonstrating that you have key person cover in place can reassure investors and lenders of your business's resilience. 
• Peace of mind: Knowing that your business is protected in the event of a key person's absence can reduce stress and allow you to focus on running your business.

Who needs key person cover?

Key person cover is essential for businesses that rely heavily on specific individuals for their success. While it might seem obvious for small businesses with few employees, its importance extends to larger companies as well.

Here's a breakdown of businesses that should strongly consider key person cover.

Small businesses 

• Sole traders and partnerships: The loss of the owner or a key partner can be catastrophic. 
• Start-ups: Founders often play a pivotal role in a company’s early success. 
• Small businesses with limited staff: The absence of a key employee can significantly impact operations.

Medium and Large Businesses 

• Companies with unique products or services: If a business relief on a specific individual’s expertise or knowledge, they are at risk. 
• Businesses with high-profile employees: The loss of a high-profile individual can damage a company’s reputation and customer base. 
• Companies with complex operations: Key personnel often hold critical positions that are difficult to replace.

Specific Industries 

• Technology companies: Key engineers or developers can be indispensable. 
• Professional services: Lawyers, accountants, and consultants with specialised skills are often key persons. 
• Retail and hospitality: A charismatic leader or experienced manager can be crucial for customer loyalty.

How does key person cover work?

Key person cover is essentially a life insurance policy taken out by a business on the life of a crucial employee. Here’s a breakdown of how it works.

The policy 

• Policyholder: The business is the policyholder. 
• Insured person: The key employee is the person insured. 
• Benefit: The business receives a lump sum payment if the insured person dies or suffers a specified critical illness.

The claim 

• Trigger event: The death or critical illness of the key person triggers the claim. 
• Payment: The insurance company pays a lump sum to the business as outlined in the policy.

Use of the payout

The business can use the payout for various purposes, including: 

• recruitment and training: finding and training a replacement for the key person 
• business continuity: covering operational costs during the transition period 
• debt repayment: paying off business loans or debts 
• business restructuring: funding changes to the business model or operations 
• shareholder dividends: distributing the money to shareholders.

It's important to note: 

• the amount of cover should be carefully calculated to match the potential financial loss to the business 
• the policy can often be tailored to include critical illness cover, providing financial protection in case of a serious illness 
• regular reviews of the policy are essential to ensure it continues to meet the business's needs.

Remember, key person cover is a proactive measure to protect your business. By investing in this insurance, you are safeguarding your company's future and ensuring its long-term success.