PMS Business
Key Person Insurance
Help protect your business against the financial impact of losing a director, founder or employee whose contribution is important to its continued success. The policy pays the business, not the individual, so it can respond while it recovers.
What is Key Person Insurance
Key Person Insurance is a policy owned and paid for by the business on the life of an individual whose loss would hurt it financially. If that person dies, or is diagnosed with a covered critical illness where that option is chosen, the insurer pays a lump sum to the business.
Who may be considered a key person
A key person is anyone whose absence would reduce profits, put borrowing at risk or cost a lot to replace. That may include:
founders and directors
senior sales staff who bring in a large share of revenue
employees with specialist technical knowledge
people who hold important customer or supplier relationships
How losing a key person could affect a business
Income can fall while work is lost or delayed. Recruiting and training a replacement takes time and money. Lenders may review facilities, and customers may look elsewhere if they lose confidence.
How Key Person Insurance works
The business is the policyholder and pays the premiums. It chooses the amount of cover and the term, and the person insured must agree to the policy and complete the application. If a valid claim is made, the money is paid to the business to use as it needs — for example to cover lost profit, recruitment or repaying debt.
How much cover a business may need
There is no single formula. Insurers commonly look at a multiple of the person's contribution to profit, a multiple of their remuneration, or the cost of replacing them and the debts they guarantee. Insurers set their own limits, and we will explain the approach that fits your business.
Life cover and critical illness options
Cover can be life only, or life and critical illness. Adding critical illness means a claim could also be made on diagnosis of a covered condition, which may matter more to a business than a death claim. Definitions and covered conditions vary between insurers.
Protecting business borrowing
Where a loan, overdraft or director's guarantee depends on a key person, cover can be set up to provide the money to repay or reduce that borrowing. This is often called business loan protection, and we look at it as part of the same review.
Tax treatment and professional advice
Whether premiums can be deducted, and how any payout is taxed, depends on the purpose of the policy, who owns it and your business's circumstances. We cannot promise any particular tax outcome, so please discuss this with your accountant before the policy is set up.
Potential benefits and important considerations
Benefits
- Money for the business at the point it is most exposed
- Can help reassure lenders, customers and suppliers
- Cover amount and term set around your business
Things to consider
- Premiums are a cost to the business and cover ends when premiums stop
- Tax treatment is not certain and needs your accountant's input
- Claims depend on the policy terms and, for critical illness, the insurer's definitions
Illustrative example — not a guaranteed outcome
A design studio and its lead creative
A ten-person studio wins most of its work through its creative director. If she were seriously ill for a year, the studio estimates it would lose a significant share of its fee income and would need to hire a senior freelancer.
With key person cover including critical illness, a valid claim could give the studio money to bring in cover while it rebuilds its pipeline. The amount paid would depend on the cover chosen and the policy terms.
How it works
How we review key person cover
Three steps from identifying who matters most to cover in place.
- 01
Identify your key people
We talk through who the business relies on and what losing them would cost.
Key people and risks identified - 02
Size and structure the cover
We look at the amount, term and life or critical illness options that fit.
A cover level you can justify - 03
Apply and review
We help with the application and review the cover as roles and profits change.
Cover in place and kept current
Ready to take the first step?
Your initial consultation is without obligation. Speak with an adviser in Croydon or over Zoom.
Key Person Insurance FAQs
The business is normally the policyholder and pays the premiums, and any payout is made to the business.
The person insured completes the application and the insurer decides whether further medical evidence is needed, depending on age, health and the amount of cover.
Yes. Many businesses cover two or three key people, either on separate policies or with different amounts for each.
The business can usually cancel the policy, and some insurers allow it to be changed. We would review it with you at that point.
Related PMS Business services
Arrange a Key Person Insurance review
Speak to us about your business. Your first conversation is without obligation.
Important information
Tax treatment depends on individual and business circumstances and may change. We do not give tax advice; please speak to your accountant or tax adviser. The Financial Conduct Authority does not regulate tax advice.
Covered conditions, definitions, exclusions and any survival period vary between insurers and policies. A claim is paid only if the policy definition is met.
Before you proceed we will confirm in writing whether PMS Mortgages advises on and arranges this cover, or introduces you to another firm, and what that firm's role is.