Key Person Income protection
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What Is Key Person Income Protection
Key person income protection insurance is a policy that provides replacement income to a business if a vital employee suffers an illness or injury that prevents them from working.
Some key things to know:
- It insures against the loss of income generated by an employee who is critical to the success and profitability of the company. This could be a founder, top executive, lead salesperson, or key technical expert.
- The policy pays out a monthly income to the business to cover the financial impacts if that employee is unable to work for an extended period due to health reasons.
- This income can help the business pay for costs to replace the employee’s work through temporary staffing, overtime, or operational changes.
- It is an annual contract renewable each year. Payouts typically begin after a waiting period of 2-8 weeks from the disability date.
- Benefits are usually payable for 12-24 months until the employee can return or a permanent replacement is found.
- Premiums are deductible as a business expense. Benefits received are taxed as business income.
It complements disability income insurance owned by the individual employee. Business overhead costs differ from personal living expenses covered.This specialised policy is worth considering for businesses highly reliant on a few people generating significant revenues or expertise. Losing them can directly impact the bottom line.
How Does It Work?
- Maximum Cover – This is normally around £20,000 per month or £250,000 per year for level cover.
- Types of Cover – Level or Increasing to either a set percentage or in line with the retail price index.
- Minimum Term – 5 years
- Maximum Term – 20 years
Premiums can be paid on a monthly or annual basis. The premiums are normally tax deductible but may be counted as a benefit in kind. Read more about the taxation of key man insurance here.
Why do I need Key Person Income Protection Cover?
Financial Protection: Losing a key employee or owner due to illness, injury, or disability can have a significant financial impact on a business. Key person income protection cover provides a financial safety net by helping to pay a monthly income to the company allowing the business to provide a wage to the person who is ill.
Business Continuity: Key individuals often play critical roles in the day-to-day operations, profitability, or success of a business. If a key person becomes unable to work due to a covered event, it can disrupt the business’s operations, relationships, and revenue generation. Key person income protection can help ensure business continuity by providing funds to hire and train a replacement, cover additional expenses, or weather the financial challenges that may arise during the absence of the key person.
Employee Retention and Recruitment: Offering key man income protection insurance as part of an employee benefits package can be attractive to key employees, as it provides them with financial protection in case of illness, injury, or disability. This can help with employee retention and recruitment efforts, as it demonstrates the business’s commitment to protecting key employees and their financial well-being.
Key Person Income Protection FAQ
There’s usually great flexibility in terms of how long a Key Person Income Protection policy can cover. Terms typically range between 5 and 20 years.
Cover can start within a range that covers the majority of working ages. The minimum age for cover is 18 while most policies will have a maximum starting age of 59. This will usually cover most key personnel throughout their working lives.
Most cover periods end when the person covered reaches the age of 70.
While all policies vary, typically a provider will refuse to pay out a claim under the following circumstances.
- If incapacity is incurred as the result of intentional self-inflicted injury.
- It’s the result of circumstances not included in the cover summary.
- The person covered doesn’t meet the provider’s definition of incapacitated
- If medical or other evidence is not provided when requested by the provider.
Always read your prospective provider’s terms and conditions before committing to a policy.
There are a few key reasons why key person income protection policies in the UK tend to have limited benefit payment terms rather than paying until retirement age:
- Motivates business to find a replacement – Knowing benefits will end prompts action to recruit suitable talent.
- Controls insurer risk – Caps their maximum payout exposure on claims.
- Reduces premium costs – Shorter terms mean lower policy prices.
- Matches temporary need – Income tide-over lasts until new hire or return.
- Avoids overlap with other policies – Individual disability coverage provides long-term income if still unable to work after key person benefits stop.
- Aligns with business dynamics – Turnover can make any one employee less “key” over time.
- Allows policy adjustments – Terms can be altered as business needs shift.
The limited terms balance protection, cost, and flexibility for this unique business insurance need. Permanent benefits are not typical.
Why Choose Us?
- MyKeyManInsurance.com started in 2008 we are the longest-serving business protection specialist in the UK.
- You deal directly with us we do not pass on your details to any third parties.
- The ONLY Website where you can quote and apply online.
- FCA-authorised advisers with years of experience in business insurance.
- We are a whole market broker able to quote from all the UK providers.
- GUARANTEED Lowest Key Man Income Protection Rates In The UK.
- Free trust set up.
- 5 Star Trust Pilot reviews, our customers love us!
Further Reading
Key Man Insurance UK Taxation Guide (Updated 2023)
Check out our detailed guide on the taxation of key person insurance. We look at how to set up your policy in the most tax efficient way and to make sure your premiums are tax deductable.
Key Man Insurance Guide & Quotes
All you need to know about key man insurance which pays a lump sum in the event of death or critical illness.
Key Person Insurance Calculator
Work out how much money you can save with our key person insurance calculator.
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