Keyman insurance, also known as Key Person Insurance is designed to compensate a business for the financial loss brought about by the death or critical illness of a key employee(s).  In this article, we cover the following areas:

  1. Why should your business consider Keyman Insurance?
  2. Who can be covered and who benefits?
  3. The difference between Key Person Insurance and Relevant Life cover

1) Why should your business consider Keyman Insurance?

91% of SMEs have four owners or less, and 95.6% have less than 10 employees. This indicates that these businesses are the ones that could be at the greatest risk in the event of the death or critical illness of a key person.

People are an important, yet often overlooked business asset and many businesses (particularly SMEs) have at least one key person it replies on. So what would happen to your business if you, a co-director, partner, manager or a key employee was diagnosed with a critical illness, or died?

46% of UK businesses would be forced to cease trading immediately if a key person died or was unable to continue working through illness or injury and 52% of businesses say they would probably cease trading in under one year.

Problems faced often include:

  • Loss of profits
  • Loss of sales
  • Need to recruit, or train a replacement
  • Loss of confidence from suppliers, resulting in difficulties obtaining credit
  • Loss of knowledge of processes / systems
  • Difficulties repaying existing loans
  • Loss of goodwill

2) Who can be covered and who benefits?

The definition of who is ‘a key person’ will vary from business to business and may not always be the founder. They are usually defined as an individual who plays a vital role in the financial success of the business, in otherwords, someone the insurance underwriters consider to have an insurable interest.

It could be a top salesman, an operations manager, office manager, technical manager etc.

Keyman Insurance is taken out by the business to cover critical illness and/or death of an individual(s). Premiums are paid by the business and in the event of a claim, a lump sum, or regular monthly sum (as defined in the terms of the policy) is paid to the business.

3) What is the difference between Key Person Insurance and Relevant Life cover

Key Person Insurance

  • Available to all types of businesses with employees.

  • The employer takes out a policy on a key employee(s)

  • Policy can include critical illness cover

  • The employer pays the premiums

  • Usually classed as a business expense.

  • The employer is the beneficiary of the policy in the event a claim is made.

Relevant Life Cover

  • Not available to Sole Traders, or Equity partners in a partnership, or a member of a Limited Liability Partnership.

  • An employer takes out a life policy on a key employee(s)

  • Critical Illness Cover is excluded (must be purchased separately)

  • The employer pays the premiums

  • The employer can treat the cost of the policy as a taxable expense and there is an income tax and national insurance benefit

  • The employee’s family or financial dependents are the beneficiary of the policy in the event of a claim.

More information about Relevant Life Cover can be found here: https://ttwealth.co.uk/relevant-life-insurance/

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In Summary

When it comes to taking out financial protection for your business there are many areas to explore. If you would like to book a free 30 minute initial chat, please click the button below, or contact Tony Thomas on 07585 592494 or tony@ttwealth.co.uk

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