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What is Key Man Insurance?

What is Key Man Insurance?

Key Man Insurance is a policy taken out by a business to insure their most valuable employee’s (key people). The policy is designed to protect the company from the financial impacts of losing their key people through death or illness. The business owns the policy and is the beneficiary of any payout.

Policies can be taken out as a life only insurance or with critical illness included. The benefit is a tax-free lump sum which is paid to the company in the event of a claim. The cover is taken out over a term, normally a 5 year or 10 year guaranteed premium depending on how long you think it's needed. All policies through us can be cancelled at any time without penalty or tie ins.

According to statistics, only 28% of UK business’s established in the last two years have any kind of business protection in place. Yet 46% would cease trading immediately if a key person died

Who Are My Key Personnel?

Who Are My Key Personnel?

Your company could have various workers essential to profits. A key person is not always the top sales person or “bread winner”. A key person could be the brains behind the operation. Maybe someone who knows the design mechanics or engineering details of the main product. Maybe the creator of the intellectual property, the invention, discovery or design. Many of the people we insure will be directors and managers. But as far as the underwriter is concerned, as long as there is an insurable interest its reasonable for that person to be considered.

Typical key people will be:

  • The office manager - integral for the day to day running of the business.
  • The web developer - without their know-how the companies main shop window could go down.
  • The Founder - The person who come up with the idea and knows the product inside out.
  • Technical Support Manager - Someone your company relies on to keep the IT side running.
  • The man with the contacts - The person bringing in the majority of sales and profits.
  • Top Sales Person - integral for the day to day running of the business.

Everyone within your company will be linked to profits and as a result be absolutely essential. Companies will always make sure they insure expensive machinery and other company assets. So, therefore, wouldn’t it be wise to insure your most valuable assets, the key people.

How Much Is Keyman Insurance?

How Much Is Keyman Insurance?

The cost of key man insurance is based on the life that is being insured. It's calculated much like normal life insurance depending on how old the person is if they smoke, the amount of cover and the term. All quotes are subject to underwriting which means premiums could go up before terms are issued.

Premiums can increase due to high BMI (Body Mass Index) or high blood pressure but can also be down to things such as hazardous leisure activity or dangerous duties at work. It's a good idea to tell us any issues up front as there are providers more lenient on certain issues. Free free to use our BMI calculator and see if your premium could be loaded.

Calculating Keyman cover

Calculating Keyman cover

The sum assured for a key person is really down to the individual business. What would the financial repercussions be tomorrow if that person was no longer around? Most of the time a business owner will look at the turnover of the company and work out a percentage that the key person brings to the company, then insure for that amount. But it's worth thinking things through a little more. You can use our key person calculator.

 
  • Covering loss of profits
  • Cost of hiring a replacement
  • Keeping all bills and loan repayments covered.
Relevant Life Calculator

Losing a key person can have many detrimental effects to the company which can all contribute to the business’s well being. Contracts still need to be honoured and customer confidence will need to be maintained. Key people often have all the client relationships and the know how of the business. So all things considered a financial injection from a policy pay out will help, but some extra thought and contingency planning can also go a long way.

Tax Treatment

Tax Treatment

The two most common questions we are asked regarding key man insurance tax treatment are:

  1. Can the premiums be off set against corporation tax? - Yes, they can. The company owns the policy and pays for the premiums. These premiums are tax deductible.
  2. Is a lump sum benefit tax-free? - Yes, it is, Its paid tax-free to the company. It's then liable to tax like any other amount of money from a company.

For most people, the above will suffice. If you really want to know more regarding how HMRC treat Keyman insurance then please visit our in depth guide here.

Why Us

Why Us

  • Established in 2008 we are the longest serving business protection specialist in the UK
  • FCA authorised advisers with years of experience in business protection
  • We are a whole of market broker able to give you the best deal from all the UK providers
  • We GUARANTEE to beat any price.
  • You deal directly with us we do not pass on your details to any third parties.
  • Free trust set up
  • 5 Star Trust Pilot reviews, our customers love us!

Why Choose Us

  • Whole of Market Brokers

    We are able to compare all the top UK brands giving you the widest choice of available UK insurers.

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    Whole of Market Brokers
  • You Deal With Us Directly

    We do not sell your information as a lead. We are signed up to the data protection act and you deal only with us.

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    You Deal With Us Directly
  • We Simply Wont Be Beaten On Price!

    We are so confident you won’t find a better price like for like we GUARANTEE IT!

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    We Simply Wont Be Beaten On Price!
  • FCA Qualified Advisors

    All our advisers are qualified and abide by the rules set by the Financial Conduct Authority. We are experts in key man insurance!

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  • Over £400 Million On Cover Placed So Far

    We have helped 1000s of UK companies arrange their business protection and have secured over £400 Million worth of cover.

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    Over £400 Million On Cover Placed So Far

meet our team

Our dedicated team are here to offer you expert FCA qualified advice along with 1st class support to make sure the process is fast and simple.

Jody Pearmain
Jody Pearmain

Managing Director & Founder (My Key Finance Ltd)

Lori Norton
Lori Norton

Administration Manager at MyKeyManInsurance.com (My Key Finance Ltd)

Tyler Pearmain
Tyler Pearmain

Senior Keyman Insurance Adviser at MyKeyManInsurance.com (My Key Finance Ltd)

Keri Gardiner
Keri Gardiner

Customer Service & Website Admin at MyKeyManInsurance.com (My Key Finance Ltd)

Key Person FAQ

Who Can Take Out A Key Man Policy?

Keyman insurance is normally taken out by a ltd company. However it can be taken out by sole traders as a “life of another” policy. The company or person taking out the insurance must have a financial association with the life assured.

Who Owns The Policy?

The policy is taken out by the company to cover an employee so the company owns the policy and is the beneficiary of any claim

Can The Owner Of The Policy be Changed?

You can change the owner of the policy through a “deed of ownership”. These are not provided by the providers and would have to be written up through a solicitor. You may need to change the owner of the policy if your company ceases trading or you leave and want to transfer the policy to a personal cover.

How much does Key Man Insurance cost?

The cost is dependant on the life assured age, smoker status amount of cover and term. Once a policy is submitted to the underwriter it can be either accepted on standard rates, loaded, with an exclusion, postponed or declined. So you will not know the exact price of the policy until you have terms issued.

What can the terms be?

When a policy is issued at standard rates and the price remains the same as the quote (subject to when its started). A loaded premium is when the underwriter see’s fit to increase the premium due to possible health issues or something else that has come to light since the original application. An exclusion is normally related to a critical illness exclusion of one or more of the definitions. For example someone may be excluded for cancer if they have previously had cancer. Policies are sometimes postponed if the underwriter wants to wait for further evidence or for cool off periods since a previous health issue. Policies can be declined for a number of reasons but its mainly down to someone being too high of a risk due to bad health.

How long does it take to set up a policy?

Once you have decided to go ahead the application only takes about 15 minutes. Once the application is submitted to the underwriter it can be accepted straight away. If you are happy with the terms offered we can start the policy straight away. In which case you can be covered within a day. If however the underwriter wants further evidence it will hold up the policy. For example an underwriter may want to see a copy of your GP report. GP’s have been known to take a few months to return a report but in most cases its a few weeks. Once the underwriter has all the information needed its normally only about 48 hours to have an underwriting decision.

Does it have to be a UK company to take out the cover?

The owner of the policy has to be a UK company although the lives assured do not have to reside in the UK.

Can an LLP take out Key Person Insurance

Yes LLP’s are treated the same as limited companies when it comes to key man insurance.

How Much Should I Insure the person for?

It really depends on the reason for the insurance. If its to cover a loan or investment they you would normally cover them for that amount. If its straight forward key person insurance then you would need to work out how much that person is worth to company. Think about loss of profits, cost of replacement and debts that would need to be covered and contingency to keep the company running without that person. Use our calculator to help work out the cover amount.

Is key man insurance tax deductible?

In most cases yes they are. Please take a look at our page on key man insurance taxation for further details on this.

How long should we insure our key person for?

Keyman insurance is underwritten very much the same as a normal life insurance product with Guaranteed and Reviewable rates. It really depends on how long you think you will need the policy. If you belive the person you are insuring will be at your company for 10 years then you should take out a 10 year premium guaranteed or reviewable premium. Taking out a shorter premium may mean having to renew it which will normally mean more expense especially if that person has suffered any illnesses. Taking out a longer term premium will guarantee the rates (if you take out guaranteed rates) and means yoo do not have to renew the policy. You can cancel these policies at anytime without penalty so there is no risk of taking of being stuck with a policy if that person leaves the company. Shorter premiums are normally cheaper as the underwriter does not have to calculate the person being that bit older but as mentioned it will be more expensive if you then have to renew the policy.

Can we take an income as appose to a lump sum?

Yes we can arrange a policy to pay out monthly amounts. You may even be more suited to a key man income protection policy.

Can we add critical illness to a key man insurance?

Yes critical illness can be added to any key person policy and will be paid to the company in the event of a successful claim.

Will I have to have a medical?

This depends on age, health and sum assured. Policies over £500,000 normally always require a medical no matter what provider is used.

Can a medical be carried out at home?

Yes we always try and make sure the medical is arranged to your convenience however its not always possible to have the medical at home.

What Options Do I Have?

  • Life Only Key Man Insurance
A life only policy is much like a straight forward term life insurance. A person is insured for a sum of money is which is paid out on death. The only variation from different providers will be whether terminal illness is also included which it normally is. Life Only can be taken out with a level term or decreasing sum assured.
  • Life & Critical Illness
Critical illness can be bolted on to the life insurance or taken out on its own (Not very often) A life and critical illness keyman cover will pay out a lump sum on diagnosis of a critical illness as set in the definitions of the policy. Over 70% of claims are for heart attack, stroke and cancer. Critical illnesses covered will vary between providers, but most will abide by the rules set out from the ABI. Speak to one of our advisers for more specific information on providers and their definitions.
  • Key Man Income Protection
Key man income protection is another option which can sometimes be more suitable. Much like a personal income protection policy, key man income protection will pay out a monthly income to the company in the event that the life assured is unable to work due to sickness or injury. Income protection policies are normally taken out on a shorter term and the benefit pay-out is normally limited to 12 to 24 months. There is also a set deferred period of no less than 4 weeks which means the key person would need to be off work for at least 4 weeks before the benefit would start to pay out. The underwriting is quite strict and there are only a few companies that offer cover. You will need to have more than 2 employee’s and the life assured can not be liable for more than 70% of company profits.
  • Whole of market brokers
Being a whole of market broker allows us unrestricted access to quote from all the UK providers.  These include companies such as Legal and General, Zurich, AIG and Aviva to name a few. By keeping whole of market access we are able to compare the widest range of options for our clients meaning they get the best options and the cheapest price.

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