What is key man insurance?

In this insight, we’ll aim to answer your questions, such as what is key man insurance, what does it cover, who is a key man, the benefits, and more. 

Darren Perkins
Sales Director
What is key man insurance?
Darren Perkins
Sales Director
Business Protection
September 18, 2023
Read time: 

If an individual within your business is critical to its success, daily operations, and ability to deliver your products and service, you may benefit from key man insurance. The policy aims to protect your company from the costs and risks of losing a key employee due to death, critical illnesses, or terminal illnesses.

Key man insurance may also be called key woman or key person insurance

What does key man insurance cover?

Key man insurance is designed to protect businesses from the risks and costs associated with losing key employees. The policy may provide a lump sum payout when one of the following happens to a covered employee;

  • Passes away.
  • Is diagnosed with a critical illness.
  • Is diagnosed with a terminal illness.

What is a key man insurance policy?

When you purchase key man insurance, you'll be provided with a policy booklet and certificate of cover that includes finer details such as how to claim, what's excluded, how long the cover lasts, the cost and more. Here's what you need to know:

  1. Key man insurance covers individuals within a business.
  1. The policy is set up, paid for and managed by the company.
  1. If a claim is made on a policy, the payout will be made to the company.
  1. The cost depends on factors such as cover duration alongside factors unique to the key man being insured such as medical history.
  1. If a claim is made, the benefit amount may be paid as a lump sum to the business.
  1. Any claim amount paid may not be subject to taxes, meaning the business may use the entire amount to cover any costs arising from the absence of the key employee.
  1. It's up to a company to decide who they consider a key person.
  1. Key man insurance policies can provide long or short term cover which means they can be tailored to suit the business's needs

What are the benefits of key man insurance?

How each business benefits depends on factors such as who they’re covering, the size of their company, and much more. Some example benefits may include:

  1. Security - The funds paid out by key man insurance aims to cover the costs of losing a key employee and provide financial security. Costs may vary from recruitment and training to a loss in output due to losing a key employee.
  1. Investor confidence - Having the policy in place may demonstrate to investors and key stakeholders that your company is able to continue in the event of losing an employee that's instrumental in the day-to-day running and success of your operations.
  1. Deductible cost - The policy cost may be deductible from pre-tax profits as an allowable business expense.
  1. Multiple policies - If your company has multiple key persons essential to your success, you can purchase multiple policies to cover each one.
  1. Peace of mind - The risks associated with losing a key employee may bring with it stress, anxiety and other negative feelings. Having a contingency plan in place may provide owners, investors and stakeholders with peace of mind.
  1. Loan repayments - If the key person has personally guaranteed business loans, you may be able to use the policy payout to cover these loans so that your company isn’t burdened with debt.

How much does key man insurance cost?

The cost of key man insurance depends on many factors, and we're only able to provide you with a direct cost estimate by learning more about the employee you wish to cover and your business. However, some factors that will impact the cost include:

  1. Employee age
  2. Employee role
  3. Employee salary
  4. Employee lifestyle
  5. Employee smoking status
  6. Employee medical history
  7. Employee family medical history
  8. Employee location
  9. Length of policy cover
  10. Cover amount
  11. Business industry and size

Who is considered a key man?

Key man insurance is typically used to cover individuals who are considered essential to the daily operations, revenue generation activities, and ultimately growth and success. It’s up to each business to decide who they consider to be a key person, and some common examples include:

  • Owners/founders - Founders are often instrumental in setting the company's vision, culture and understanding the direction it's heading in.
  • Executives - Such as CEO, COO, CFO and other executives who are responsible for strategic decision making and driving growth.
  • Key salespeople - Some salespeople may help generate a significant portion of revenue and represent a large risk if you were to lose them.
  • Technical experts - Such as individuals with specialist technical knowledge on your systems and software.
  • Employees with unique skills - Within your team, there may be employees with niche, specialist or unique skills that very few other employees are able to perform.
  • Loan guarantors - If an individual has personally guaranteed business loans, you may be required to pay the loan if they’re suddenly unavailable.
  • Medical professionals - In the medical industry, high-level staff such as key physicians or surgeons may be essential to continue offering the same level of treatments and service.
  • Financial experts - Financial institutions, investment firms, or accounting firms may consider key persons to be financial analysts, portfolio managers, or chief financial officers (CFOs) who make critical investment decisions or manage the company's financial health.
  • Manufacturing specialists - Such as individuals with specialist knowledge of production processes and machinery.
  • Supply chain managers - If your business relies on complex supply chains or logistics, you may have key individuals essential to keep your business running.
  • Customer relationship managers - Businesses in service industries, such as hospitality, retail, or client-based services, may depend on customer relationship managers or client-facing staff who maintain key client relationships and drive revenue through repeat business and referrals.
  • Legal advisors - Such as senior lawyers or individuals who specialise in a particular area of law that attracts revenue.
  • Public relations and communications experts - Companies that rely heavily on their public image and reputation may designate PR and communications specialists as key individuals, as they manage the company's external perception and crisis management.

Learn more and compare key man insurance

We offer a free advice and comparison service to help you get started with the next steps. We'll understand more about the unique needs of your employees and what you're looking to gain from a key person insurance policy. 

We'll then compare policies available across the UK market and guide you on which may be the most relevant to your specific needs. To get started, provide some information below, and a member of our team will be in touch.

Speak to an independent insurance advisor

Our advisors are available to answer any questions, compare or renew policies, and help advise you on insurance needs. To speak to someone, provide some contact information, and a member will be in touch.

0800 970 1618
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