Keyman Insurance or Key Person Insurance as it is also known, is a life insurance policy taken out by a business. It is used to protect it in case it lost any of the key people within it. This is used in order to protect the business if anything were to happen to the most important people involved within it. It is extremely important to small and medium sized businesses.
This is used if the owner or a key employee were to die, suffer a serious illness or injury. This insurance would pay out the lump sum laid out within the contract. It is usually only taken out on the most critical employees within the business. This money is then used to keep the company running and paying it’s expenses until that key person can then be replaced or returns.
In some cases without this Keyman insurance then if a key employee were to die then it could ruin the company. This is because the owner is normally the person who holds the business together. Either through the accounts or the employees, especially in a small business with few employees.
You can get various amounts of cover depending on the importance of the employee or the size of the business. The amounts range from £100,000 to £1m plus.
However, if you are a sole trader there is often no need to take out this type of insurance. If the business is owned by a sole person and if that person was unable to work, in theory, it is then just a matter of closing the business down. However, it would still be advisable to consider Key Person insurance even in this instance. This is due to the impact it could potentially have on any surviving family members. This will be due to there reliance on the income from the business. It could also be important to make sure any personal guarantees that may have been taken out are catered for.
There are many different options and scenarios regarding this. This is why we’d recommend talking through your individual circumstances with one of our highly trained advisers.