Key person insurance protects businesses when someone integral to the company dies or becomes unable to work due to ill health. Lakeside Financial Adviser, James Foster, explains how to identify a ‘key person’ and outlines the benefits of such cover.

Why should a business have key person insurance?

J: Every company, especially small and medium-sized businesses, will have key individuals that make a significant contribution to the running of the business. If they were to lose any of these people due to a serious illness or death, it would have a big impact on the company and might even prevent it from operating. This type of policy insures against these events, and so should they occur, the company would receive a payout. This could cover any lost revenue or the cost of recruiting and training new employees to take over the role.

Which individuals within a business should have key person insurance?

J: A key person in a business is typically defined as someone who makes a significant contribution to the business’s financial success. Each company will be unique in whom they deem to be a key person, but examples can be the founders or directors. It can also be those responsible for the company’s marketing strategy or a top salesperson. It could even be someone with a rare skill set that is hard to come by or someone with in-depth knowledge in a particular area. Basically, the loss of this person through serious illness or death would have a considerable and instant negative impact on the company turnover, or it would be difficult or expensive to find or train someone new to take over the role. In such circumstances, an insurance policy payout would help get the company through a difficult period or cover the cost of recruiting/training someone to step into the role.

What are the top considerations when taking out key person cover?

J: The first step is to establish who the key people are. Then consider how much the business would be impacted financially and for how long if that person became seriously ill or died. Like many other types of insurance, key person policies are underwritten. The premium will depend on the size of the policy and how long the policy is going to be in force and the individual’s age and medical status.

How can Lakeside assist clients wanting to explore this type of insurance?

J: The starting point for us would be to understand the client’s circumstances and what they want to achieve. We can then develop a robust financial plan to meet their objectives which will include a review of their insurance requirements. We save clients time by researching the insurance policies available and applying for the most suitable one on their behalf. We can then keep it under review, revisiting it at least annually or following a key change within the company.

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Please feel free to contact us for further information: admin@lakesidefs.co.uk

First published on September 29th, 2021

The information provided above is believed to be correct at the time of publication and is provided for information purposes only, it does not constitute advice. Any reference to interest rates or growth rates are examples only and are for illustrative purposes only. You should seek independent financial advice before making any decisions about your finances and financial products. We accept no liability for loss as a result of any action taken based on the information on this page where appropriate independent financial advice is not taken from Lakeside FS Ltd.