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Client Centre

Key Man Insurance Explained


Key man insurance, or to put it in “politically correct” terms, key person insurance is a concept that you may have come across and, if you are a business owner, you may have wondered if it is something you should consider.

What is Key Man Insurance? Also known as key person insurance is designed to protect your business should one of your key people die or become seriously ill. We explain exactly what the insurance is for, and after reading this, hopefully, you will get a feel for whether or not it is something you may need.

Before we do that, let’s go back a step and think about your key employee or employees.

For many businesses one of their greatest assets is their people. This could be your sales manager whose wealth of knowledge about your customer base is invaluable or maybe a person with expertise in a particular field, without whom your business might struggle to survive.

Is there a person upon whom you rely for their expertise, or who’s contribution accounts for a large proportion of the revenue that your business generates? If there is, then this person would be considered a key-man or key-woman and if they were to leave there would be adverse financial consequences.

Of course, any employee is free to move on to another employer at any time, and you are probably already making efforts to try to avoid this, and retain staff through good communication and by ensuring that your key person or people are well looked after by providing attractive benefits and pay etc.

You have less control over an employee’s health or even life-expectancy. Should the worst happen and you lose a key person through serious illness or death then, apart from the emotional trauma, you could also be at a huge loss, financially.

That’s where key man insurance comes in.

Protecting your business should one of your key people die or become seriously ill.

You can take out a Life Cover and/or Specified Serious Illness Plan on key employees. Premiums are paid by the business as a tax-deductible expense.

Should the employee die or become seriously ill then a lump-sum is paid to the business and this can be used to compensate against immediate financial loss and see the business through a “slump” while you train in a new employee to take over from where the key-person left off.

In summary, the insurance can't replace people, but it can provide cash to buy time and cover the costs of temporary staff, recruitment and training or cover a loss of profits by providing a much-needed cash injection.

So, key man insurance or key-woman insurance – is it for you?

…….well, nobody knows your business better than you do, so if you feel that the financial health of your business could be at risk, give us a call and we will gladly meet with you and talk you through the finer details.

September 2015

Steadfast Financial
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