Keyman Protection

If you lose a key person it could have a devastating effect resulting in a reduction in sales or a slowdown in production. You may experience a loss of confidence in your business from staff, shareholders, customers and suppliers. If staff leave and customers and suppliers take their business elsewhere the final outcome could ultimately lead to a loss of profits and imminent closure for some companies.

With Key Man Insurance you will receive a financial payout that can help to shield your business and keep things running smoothly. It is possible to insure any of your key members of staff and they don’t necessarily have to be shareholders.

You may have heard Key Man (or Keyman) Insurance Policies referred to by various names including Key Person Insurance, Business Protection Insurance, and Key Man Life Insurance. We have a range of policies available through leading providers, which offer many benefits.

The cost of Keyman Life Insurance varies depending on the level of cover you take out. If you cannot afford insurance for the full amount, you could opt for a lesser amount of cover and add to it at a later date when you can afford it. This would be better than having no Key Man Insurance at all. When deciding how much cover you require, there are a number of factors to consider:

• How would your business’s profits be affected by the loss of you or another key person?
• If you had to replace that person, how much would it cost in training and replacement?
• How quickly would your business recover from the loss of a key person? Would the loss of that person cause your business to lose new and existing customers? To determine the amount of cover needed three main methods are used:

Jim Smith is an IT Manager for a Fruit and Vegetable supply company, Fresh Fruit & Veg. Ltd. He has specialist knowledge relating to the company’s IT systems, and understands the accounts and runs the website for purchasing goods online.

The staff at Fresh Fruit & Veg. Ltd. also rely on Jim for maintenance of their IT systems and to fix all IT problems that may arise on a day-to-day basis. Unfortunately Jim has a major heart attack and is forced to finish working. We look at what happens with and without key man insurance. With Keyman Insurance As Fresh Fruit & Veg. Ltd. took out Keyman Insurance with critical illness benefit included for an amount of £500,000 they receive a lump sum of £500,000.

This was due to Jim being insured as one of their key staff and his illness is defined by the policy as a critical illness This enabled them to source and hire a replacement and costs of recruitment salary were comfortably covered until they could find a permanent replacement or until Jim was able to return to work. They also had enough money to pay for temporary staff to help fill the gap while they searched for Jim’s replacement.

Keyman insurance cover comes under four different categories:

Protection of Profits: This category of insurance will cover any losses incurred due to the absence of the key person, e.g. a reduction in sales, cancellation or deferral of projects, delays in expansion plans or other losses due to lack of specialist knowledge.

Protection of Shareholding or Partnerships: This category relates to ownership of the business and allows the remaining partners or shareholders to purchase the absent key person’s share.

Staffing Costs: This covers the costs of replacing the key person including the expenses involved in training and recruitment.

Repayment of Loans: This gives the business owners the finance to pay for the proportion of any loans for which the key person was responsible, with the amount of cover being equal to the key person’s guarantee on the loan. This gives the business owners the finance to pay for the proportion of any loans for which the key person was responsible, with the amount of cover being equal to the key person’s guarantee on the loan.