Business protection
Key man (key person) insurance
Most small businesses rely on one or two people for sales, expertise or relationships. Key person insurance pays the company a lump sum if one of them dies or becomes seriously ill, to keep the business going while you recover.
What it pays for
- Replacing lost profit while the business recovers
- Recruiting and training a replacement
- Repaying business loans or a director's loan account that becomes due
- Reassuring lenders, customers and suppliers
How much cover?
There is no single formula. Insurers commonly look at a multiple of the person's salary (often up to around 10 times), a multiple of their contribution to gross profit, or the size of the business debt you need to protect. We help you justify a sensible figure to the underwriter.
Tax treatment
The tax treatment of premiums and payouts depends on the purpose of the cover and how it is set up. Where premiums are allowed as a business expense, the payout is usually taxed as a trading receipt. We work with your accountant to agree the right approach before the policy starts.
Important information
Cover is subject to underwriting and the terms of the policy. Tax treatment depends on the individual circumstances of the business and the insured person, and may change in the future.
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Q&A
Questions & answers
What is key man insurance?
Key man (key person) insurance is a policy owned and paid for by a company that pays the business a lump sum if a key person dies or becomes critically ill.
Who counts as a key person?
Anyone whose loss would hurt the business financially – often a director, a top salesperson, or someone with specialist skills or important client relationships.
How much key person cover do I need?
Common methods are a multiple of the person's salary, a multiple of their contribution to profit, or the amount of business debt they guarantee. Insurers will want to see how the figure was reached.
Is the key person payout taxable?
It depends. If the premiums were allowed as a business expense, the payout is usually taxed as a trading receipt. Speak to us and your accountant before setting up the policy.
Your first meeting is free
Talk to an independent financial adviser in St Albans. Call 01727 223251 or send us a message.