Key Person Insurance provides a cash injection into a business when it loses a key member of staff to critical illness, serious injury or death. Key staff could include directors, sales staff, technical experts, key managers, IT specialists etc. – essentially anyone and whose long-term absence would have a significant negative effect on the business, including:

• A period of uncertainty and disruption within the business affecting its daily operations from running effectively and smoothly
• Loss of profit / loss of sales until they return to work or a replacement is found and fully effective
• Even if a replacement is found the business could lose significant clients or business partners linked to the key member of staff
• A lack of confidence in the business from the bank and other creditors, suppliers, customers and other employees
• The cost of finding a replacement, training them to the same level and paying their salary as well as continuing to pay the key person whilst they are off work due to illness or injury can be expensive

For sole traders, in most instances, there is little distinction between the individual and the business and their death or illness could mean the end of the business as no amount of money could save it. However, cover may still be important to ensure any liabilities can be paid (particularly if personal property has been used as security) and on a personal basis that their income and family is protected.

If you want to know more information please call us on 02382354354 or email enquiries@pangealife.co.uk

Judging the amount of cover required can be difficult and can vary greatly depending on who is being covered, the value they represent to the business and the strategy for managing their absence. The sum required could include:

• the cost recruiting and training a replacement 
• the loss of profits 
• increased project running costs 
• the size of any loans that might need clearing. 

There are three main methods for calculating the amount of cover when Key Person insurance is being used to protect the loss of profit:

Multiple of salary – this may not always be appropriate as it only really focuses on replacement costs rather than the loss to the business

Multiple of profits – A benchmark calculation often used is 2 x gross profit or 5 x net profit that the individual represents to the company

Calculated Impact – This is probably the most accurate method as it attempts to quantify the actual net loss by balancing lost turnover with savings and then adding any one-off costs expected.

Pangea Life specialise in advising on Key Person insurances whether you need to review an existing policy or are thinking about taking out a policy for the very first time, when you talk to us you will be in great hands.

We work with all the leading and insurers in the UK and have a full understanding of the differences between each of their offers and underwriting requirements, ensuring you get the policy that is right for you and at the best rate available. 

Key Person Protection is vital for any business whose most valuable asset is its staff and whose greatest risk is losing them. Although you are not able to predict what the future holds, Key Person Protection will provide your business with valuable finances and the time need to get your business back on track.

If you have any questions about Key Person Insurance or even want to find out about other business protection insurances e.g Shareholder Protection complete the contact form or give us a call Monday to Friday between 9am – 5pm on 02382 354 354