ThinkIFA guide to ‘Keyperson Insurance’
Keyperson or keyman insurance is a policy taken out on behalf of a business to compensate for losses that would occur should an important member of the business become seriously ill or dies.
Imagine if you ran a business with a partner. Would you be financially protected if they were left unable to work?
Keyperson insurance is designed to pay out a fixed lump sum to the business that would enable you to offset the costs of losing a critical member of staff.
How Does Keyperson Insurance Work?
This insurance falls under the broad umbrella of business protection insurance, but is designed specifically to pay out should a key member of staff be unable to work.
The money goes directly to the business and can run into hundreds of thousands of pounds depending on the policy. The money can be used as the company sees fit, either as financial reassurance, to cover the recruitment process, shore up the profits or buy that person’s shares from them. The type of keyman insurance you get denotes where this cash injection can go.
Who is the Keyperson?
The keyperson is anyone who plays a vital role in your company such as:
- The CEO
- Managing Director
- Executive Chairperson
- Department Director (Director of IT or Finance)
- Head of Marketing and Sales
- A Self Employed Person
If you have a member of staff who perhaps owns a large percentage of shares in the company and who plays a key role in the smooth running of your business, then that person is worth considering insuring against any losses should something happen to them.
After all, if you lose your stock or your office building then these things are generally insured and can be replaced but a vital member of your team cannot be replaced as quickly and you would not receive any financial compensation without keyperson insurance.
It is worth noting however, that the member of staff themselves or their family do not benefit financially from this insurance. They would need to have a separate policy such as Income Protection Insurance.
Types of Keyperson Insurance
There are three main types of policy:
- Profit Protection will pay out a lump sum to shore up your business profits.
- Corporate Loan and Overdraft Protection will help to repay any company debt.
- Ownership Protection will pay out a lump sum that may enable you to buy out your keyperson’s stake in the company, thus protecting your assets.
To speak with a business financial adviser to find out if your business needs Keyperson Insurance then please fill in the contact form below.