Everything you need to know about keyman insurance
Would your business survive if a key member of staff suddenly passed away? It’s probably not something you want to think about. But a sudden death or long-term absence could have a huge impact on your company’s success. You need to prepare for the worst-case scenario – and the best way to do that is to invest in a keyman insurance policy, such as that available at Rigby Financial.
Our insurance advisors are extremely knowledgeable in this area, and here they answer some of your most frequently asked questions about keyman insurance.
What is keyman insurance?
Keyman insurance is a policy taken out by a business to insure their most valuable employees. It helps to think of it as life and critical illness cover for those who are crucial to your company’s success – whether that’s the CEO, your top sales guy, or someone with a specialist skill set.
If any of these key people were to suddenly die or fall ill, a keyman insurance policy will protect your business against the financial repercussions. A lump sum is paid-out directly to the business and this can be used to cover the cost of any profit losses, replacement staff, or loan repayments. It will keep you afloat during a difficult time and could be the difference between your survival or closure.
What does keyman insurance cover?
Primarily, a keyman insurance policy provides cover for death. It will pay-out for a critical illness or disability, which prevents your employee from working. In some cases, with the addition of an ‘income protection’ clause, it may even cover the cost of temporary staff – who are needed due to long-term sickness absence.
Each policy will have a slightly different definition of a ‘key person’. However, generally speaking, keyman insurance can cover anyone who is essential to the financial success of your company. This is usually the founders and directors. But it can also include employees who generate a large percentage of profit and those with a niche talent or specialist knowledge-base.
Do I need keyman insurance?
The answer to this question is simple. If you own a business then yes, ideally, you should have keyman insurance. Your staff are your greatest asset and you need to be sure that – if the worst happened and an important person was no longer around – your company could cope with the change.
It’s particularly important to invest in key man cover if you’re a relatively small or new company. This is when you’re most reliant on your staff and losing a key member could be the difference between failure or success. You may also be asked to take out keyman insurance when applying for a business-related bank loan, as the pay-out can be used to cover the debt.
What level of keyman insurance do I need?
This will depend on a number of factors – including, most importantly, the key person’s yearly salary. As a general rule-of-thumb, this figure should be multiplied by 5 to calculate the absolute minimum level of protection that you need. For example, if a director earns £100,000 a year, their keyman insurance policy should ideally cover £500,000 (or more) in the event of death or illness.
You should also consider how much profit they create and how much it would cost to find their replacement. The bigger their contribution to the company, the more coverage you will need.
Where can I buy keyman insurance?
Most Financial Advisers now offer key person insurance. But when purchasing a new policy, it’s worth speaking to an Independent Financial Adviser (IFA) – such as Rigby Financial. Our experts can offer impartial advice on the best keyman insurance policy for you. They will identify the ‘key people’ in your company, select an appropriate level of cover to make sure you are fully protected.
Get in touch with Rigby Financial today
If you would like to find out more about keyman insurance, or any of our other business continuity insurance policies, please feel free to get in touch. Either call us today on 01744 886077 to chat to an expert or send an email to firstname.lastname@example.org for further information.