Key Person Cover for Limited Companies

Key Person Cover is designed to provide a financial safety net if a key member of staff dies. This is a life policy taken out on the life of the key person, but it is also possible to include critical illness cover, in case a key person is diagnosed with a serious illness. Any proceeds from a claim are paid directly to the company, allowing breathing space to help keep the business trading as normally as possible.

Who is a key person?

A key person is any member of staff who has a direct impact on the business’s profits. This may be the business owner, director, sales person or an employee with specialist skills or expertise.

Key person cover can protect against the following business risks:

• Recruitment costs to find a suitable replacement
• Loss of profits whilst the business is disrupted
• Paying penalties for non or late delivery of goods and services
• Paying any company sick pay to the key person if the claim is related to a critical illness
• Being unable to repay a loan
• Paying back a business overdraft
• Nervous suppliers may demand payment of an account up front
• Covering salaries, dividends or loaned money through a director’s loan account

Key Person Cover should be set up differently to match the needs of different business types. For limited companies, shareholders or key members of staff should be insured. In the event of a claim, the proceeds give the company a cash injection, which can be used to either protect the business profits or clear business debts.

Key Person Cover for limited companies should be set up on a ‘life-of-another’ basis. In the event of a claim, the money is paid directly to the company.