Key Person Insurance Information

Key person insurance is life insurance on a key person in the company. If it is a small business, it is normally the owner.  It is people whose absence would cause the company to struggle and perhaps have to consider closure. As a business, you should definitely consider key person insurance on people whose absence through illness or those death would cause the business to struggle.

Tax treatment varies according to individual circumstances and is subject to change. 

An excellent way to protect your business is Key Person Insurance.  WPP Financial Services, Rochester, Medway Kent, could help with this.

Key people are individuals who have the skills, knowledge, experience or leadership that are vital for the running of a business and its financial success. As a result if this person was  to come critically ill or die, their loss will have a detrimental impact on the business profits and cause financial strain. Key people may include company directors, sales directors, IT specialists, managing directors or heads of departments.

Key person insurance involves the business paying the premiums of a life insurance policy on the key employee.  If that person dies, the company will receive the insurance payout as a lump sum. This money can be used to pay for expenses until a suitable person can be found to replace them.  It could also be used to close the business without the need for bankruptcy by pay off any money owed, paying off employees and distributing the money put into investors in the company. 

Key person insurance is not suitable for sole traders as if no other people depend on it, the key person insurance isn’t needed.   To protect their family, employees should consider personal life insurance or as a business you could offer a relevant life plan, to protect their spouse and children financially. 

When you are deciding if you need Key Person insurance, you should consider who is irreplaceable and who the business could not run without.  It might include managing the employees or who can handle key customers in a particular way and that would mean that if that person is gone, the business would stop.

How much Key Person Insurance do I need?

You should aim to get as much Key Person insurance as you can afford. 

WPP Financial Services can give you information on the different products available.


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There are many different insurance agents who will offer products with different terms (a set length of years, whole life or variable life products).  You should consider how much money your business would need to survive to acquire a new key person and get this person trained and the business back on track.  The premiums should fit within your budget though and give you enough short-term cash should a key person die.

For example

If you had a technology guru in your business that was key to your systems and held all of that knowledge with a salary of 80K a year and they were to suddenly become critically ill and unable to work or die you would need funds to both employ someone new.

This may including recruitment fees and possible training costs which could come to £90K. 

If that employee was key to the business and supported clients with a turnover of £300K you might also want to consider incurring for loss of profits that would result also.

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Key Person Insurance Variations

When a key person in a business dies the financial consequences can destroy a business.  The business could suffer really badly, with a knock on effect on sales and profits and a huge increase in workload for others in the business.  A lump sum on the death of the insured key person will pay out that will support the business and help it to recover.  These funds can be used to help replace profit or support the finding and training of a new person.

Key Person Insurance can be arranged to provide either a regular income if the key person is no longer able to work because of an illness or injury, or can be set up to provide a lump sum if they die or are diagnosed with a critical illness.

When setting up your Key Person insurance you may want to put a plan in pace that will just help to repay any loans in the event of the loss of a key person or one that protects your loans and your profit and therefore the overall value of your business. 

Waiver of Premium might also be something to consider to protect your business.  This will means that you will not have to pay the premiums when the Key Person falls ills or dies while the policy pay out is arranged.  You won’t have to worry about monthly policy payments as these will be paid for you. 

WPP Financial Services can give you more information on this.



key person insurance, business protection, wpp financial services, rosemount financial solutions, rochester, medway, kent

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