Key Man Insurance
Key Man Insurance (sometimes called Key Person Insurance) provides financial protection for your company in the event of the sudden death, or long-term absence due to critical illness, of a key employee.
It’s essentially a form of life cover for key employees who contribute heavily to the overall success of your company - either from a direct financial standpoint, or employees with high levels of skills or experience that would be hard - or costly - to replace.
Key Man Insurance from Rigby Financial is a worthwhile investment for your business if you rely on certain employees who are essential for generating new business or have a specialist skill set that is critical to the success of your business. The policy that you take out for your firm is paid for and owned by the employing party, therefore, any potential pay-out is made payable to the employer.
Who is a Key person?
A key person is anyone your company would consider to be extremely valuable to the regular functioning of the business and therefore somebody you would find it hard to replace. It could be the best salesperson or the head of accounts for example.
The loss of such a key individual not only affects your team emotionally but can significantly affect the productivity and financial state of your business and so the aim of Key Person Cover is to protect your firm in the event of one of these instances happening.
Sales and profits could decline as remaining staff struggle to manage their increased personal workload in the absence of the key person. Payment is made through a lump sum to cover the loss of revenue.
Key Man Insurance at Rigby FinancialWe have numerous years of experience working in this sector, so we are in the perfect position to help find the ideal solution for your business. Here at Rigby Financial, we believe in finding Key Man Cover that is tailored to your specific requirements and our independent financial advisors are always on hand to help you to find a policy that meets your precise business needs.
The Key Person Insurance policy rate is usually subject to the existing health and age of the key individual. Typically, an older person with pre-existing health problems, who regularly smoke will have a higher premium. That is opposed to a healthy, younger person who does not smoke and has no pre-existing medical problems.
When taking out a policy it is vital to be completely truthful as should you need to make a claim, the cover will be deemed invalid if, for example, you said a person was a non-smoker when it turns out that they are a frequent smoker.
Contact us today to find out more about our Key Man Insurance policies or check out our blog - How Does Key Man Insurance Work?
Why do I need keyman insurance?
Losing a key person in your business can cause immediate and potentially devastating disruption to your company, and result in big financial losses.
It could be revenue reductions from lost clients, lost new business revenue, lost skills that could impact your product production, or even recruitment or training costs you incur to bring a new employee into a more senior position.
Keyman insurance cover gives your business financial compensation that can cover any costs or losses your business faces as a result of losing a key person due to death while in your employment.
A payout from keyman insurance can help you cover these short-term costs and losses from the death of an essential employee and keep your business on a safe financial footing.
When should I get keyman insurance?
There is no ‘ideal’ time to invest in keyman insurance cover, but if you have identified ‘key people’ in your company then you should consider the investment as soon as you’re able to.
There’s no way to know what the future holds and while you will never want to use your keyman insurance policy, it’s reassuring to know that you’re covered in the event the worst happens.
How do I set up keyman insurance?
The first step is to establish who in your business can be judged a ‘key person’. This will be different in every business but the easiest way to work it out is identify any employee whose death would lead to:
A loss of profits
Lead to the immediate repayment of outstanding loans
Anyone with key client/customer relationships
Anyone with a key/niche skill that would be hard to replace
The roles will differ per company, but some of the common roles that will be covered by keyman insurance, includes:
Top performing sales person
Highly skilled/ experienced engineer
Department Head/ Director (e.g. Head of Marketing)
You should also decide whether you want to invest solely in a life insurance policy, or if you want to include critical illness in the cover too. After that you should consider the length of time you want the policy to cover.
A simple way to set up your keyman insurance cover is to use an independent broker like us at Rigby Financial who can guide you through the process.
We’ll ensure you find the right type and level of cover for your key people and ensure you provide all the relevant information to make the application process smooth to get your business covered.
Who owns and pays for the keyman insurance policy?
As the employer, the keyman insurance policy will be owned by you (the company) with any payouts being made to the company in the event of a payout.
These funds can then be used to cover any potential financial losses you could face from the loss of a key workers to death or critical illness.
How is keyman insurance calculated?
The main thing to consider when calculating the level of keyman insurance cover you need to invest in, is what the financial impact would be on the business of losing the employee covered by the policy.
Specifically you should consider whether the loss would have a direct impact on your business’ profits, and what the financial implications would be of replacing a key employee in terms of either recruitment fees, or internal training.
There are many ways to calculate keyman cover, but there are some basic formulas you can use to get an idea of what level of cover you’ll need.
One is to use the employee’s salary and a multiple of years (say 5 years salary) which you can use to cover the costs of replacing an employee (recruitment, higher salaries and potential payments etc)
Another way is to calculate the level of profits to the business your employee generates (take a sales person’s 2 years average yearly recurring revenue generated for example) and cover your business for this amount.
How much does keyman insurance cost?
The costs for your keyman insurance will depend on the level of cover you take out and the duration the policy lasts for.
It will also depend on the products of the individual insurance providers and what you or your broker can negotiate with them.
If you want to get a better idea for how much keyman insurance will cost your business, get in touch with us at Rigby Financial