What is Key Man or Key Person cover?

By definition, a small business relies on a small number of key people to carry out their primary functions. When this is the case, a small business would be adversely affected in a significant fashion should a key player be lost through a sudden death or disability.

For this reason, the life assurance industry has created a number of policies in order to cover small businesses against the possibility of a key person being unable to work. These policies can cover the business as a whole, or the partners and shareholders.

Key man cover, also called Key Person cover, pays out money to the business should an insured person die or suffer from some form of critical illness. The money can be used as it sees fit. It doesn’t necessarily have to be used to recruit and train a replacement for the insured person. It could also be used to ensure that the spouse of the deceased is financially secure.

Key man cover can also help in privately owned companies to cover major shareholders. Should a major shareholder suddenly die or become disabled there is a possibility that the other directors could lose control of the company. This type of cover is called shareholder protection assurance and protects the other shareholders as the payout allows them to buy the equity that is in question. This kind of cover can also apply to partnerships, in that should one half of a partnership die or suffer sudden disability, the other partner will receive a payout to enable them to buy the equity.

Key Man policies are quite complicated, in that they require a full understanding of the business and how it works and how it is constituted in order for the policy to be effective and tax efficient. You should talk to an adviser or specialist to make sure that the policy you are thinking about taking out suits your business and its needs properly.

Insuring your key people doesn’t just end at death or critical illness. A business can also provide private medical insurance benefit for their partners or directors. The company would pay the premiums and then can write off the cost of the premiums as a business expense. Meanwhile the individuals who benefit from this will be taxed on it as a ‘benefit in kind’. The business benefits from providing this cover as it can arrange cover for a group, thus becoming able to get better terms than you may be able to obtain should you take out the cover personally. You could also avoid medical underwriting should you take out policies up to a certain level of cover. Companies such as BUPA and Standard Life provide this service.

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

Life Insurance

Ask About

> Life Insurance Advice
> What are the laws and regulations regarding life insurance in the United Kingdom?
> Who are the Financial Services Authority (FSA)
> Which life insurance products are not regulated?
> What are the types of life insurance policies available?
 > What is term insurance?
> What is Whole of Life insurance?
> What is the difference between term insurance and whole life assurance?
>What is critical illness insurance cover?
> What is Key Man or Key Person cover?
> What is Mortgage Protection Insurance?
> What do I do if I need to make a claim?
> Can I take out a UK life insurance policy if I am working abroad as an ex-patriate?
> Are the life insurance laws different in Scotland?
> Are the life insurance laws different in the EU?
 > What do I need to know about a Financial Advisor and whether they are qualified to give me professional advice?
> How do I find the cheapest life insurance for my requirements?
> Do some Insurance companies specialise in smokers?
> What are the advantages of taking out a joint life policy with ones spouse?
> How do I complain about a life insurance company?
> How do I complain about a Financial Advisor?
> How do I complain about Misleading advertising?
> How are my insurance premiums affected if I have medical problems?
> How does age effect my term assurance premiums?
> What does it mean when they say they are "loading" a policy?