Unlike most business insurance options, keyman insurance deals specifically with one individual. Whether you have a particularly stellar salesperson or an incredibly well-connected executive, there may be one person in your business that is crucial to your overall success. If that person were to pass away suddenly, your company would likely see an actual financial loss. That’s precisely what keyman insurance protects your business against.

Keyman insurance essentially fills the gap when that extremely valuable person is no longer able to work. Typically, this is in the form of a lump sum that is paid directly to the business. These funds are designed to cover the replacement of staff, profit loss, and even loan repayments. The general idea of keyman insurance is it acts as a life raft when times are tough – giving you space to get back on your feet again.

The only employees eligible for keyman insurance are those considered a key person under specific criteria. While the specifics may vary from insurer to insurer, a key person is anyone whose death could lead to a financial loss to the business through, Outstanding loans, loss of profits, loss of goodwill which has an impact on raising capital, loss of personal or business contracts, customers and suppliers losing confidence in the business and having to recruit or train a replacement. generally someone who either has a financial stake or plays a fundamental role in the business for its continued success.

For example, if the business relied on that person for loans or other credit, they could be a key person. Similarly, if their absence will significantly affect connections with customers, clients, and partners, this could indicate they are critical to the business’s success. If their absence would lead to hardship or cause significant problems, that’s a good indicator that they are eligible for keyman insurance.

The primary benefit of keyman insurance is to the business itself. While other business insurance may directly support employees, keyperson insurance is explicitly designed to help the company rather than the person. As such, the main advantage of cover is to provide your business with the financial stability needed to weather the loss of that key person.

A typical payout on keyman insurance will cover the loss of profit, any debts, and the hiring of staff to replace the individual who has died or is unable to work due to illness. This payout benefits the business by providing the additional finances needed to make up for the loss itself. If you’d also like to cover the key person for critical illness insurance or life insurance, you can do so separately.

Generally, the financial effect of losing that key employee is what you would look to cover. A few commonly used formulas are 10 times a key person’s income, 2 times the gross profit of the business attributable to the key person or 5 times their contribution to net profit. Profit figures used in these calculations are the average for the previous two years. If there is a loan that needs to be repaid on the death of the key person, the amount of cover can be that of the loan.

If certain important criteria are met, the company is able to treat the premiums paid as an allowable business expense, potentially reducing your Corporation Tax bill. The benefit paid by the policy to the business will be accounted as a trading receipt. This is based on our understanding of current legislation and HMRC practice, which can change.

If keyman insurance sounds like a good choice for your business, our team at WIS Business Protection is here to find the best deal for you. Our transparent approach and industry connections help you get the best option possible for your business needs and goals. Whether you have one key person or several, our team works with you to find the ideal solution through our trusted service.

Want to know more about keyman insurance? Schedule a meeting with our highly experienced WIS team today. We’d be happy to talk you through how it all works. Our hard-working team has the knowledge to ensure you get the best service and positive outcomes when finding the right insurance for you. No more, no less.