Key person insurance can protect a business that relies on key people – people whose skills, knowledge, experience or leadership are crucial. If you lose a key member of your team, your business may suffer a significant financial loss. Directors often do not consider the full extent of these costs but shareholders, bank managers, suppliers and customers may be unforgiving during a period of crisis. Key man insurance is crucial to protect one of your business’ main assets – its key employees. A company can insure against the financial loss it may suffer if key people were suddenly unavailable through illness or death.
There are three methods of calculating the level of key man cover: The Salary Based Method – In this method, the key person’s salary is multiplied to give the company a sum assured. This multiple is usually 5. The key person’s salary including benefits is used in the calculation. This method is normally used where the salary reflects the employee’s contribution to the company and is therefore not suitable where the key person’s salary bears no relevance to the company profits. The Payroll Method – The payroll method estimates the key person’s contribution to the company profits by dividing the key person’s salary by the company’s total wage bill and then multiplying that by the company’s gross profit level. The Profits Method – The profits method is estimated by multiplying either the gross profits or the net profits. The typical multiples are 2 x gross profits or 5 x net profits.
We offer comprehensive advice on key man insurance and as independent key man advisers, we can search the whole insurance market to find the products that best meet your needs at the most competitive premiums while you find the right replacement. Our Independent Financial Advisers are usually happy to meet at our clients’ preferred location and time and to have detailed initial discussions with no obligation.
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