Introduction
When a founder, senior employee or technical specialist becomes unavailable, the impact on revenue and cashflow can be immediate.
Key Person Insurance helps your business stay stable—funding temporary replacements, protecting profit, and reassuring lenders and stakeholders.
Key Person Insurance is a business-owned life, critical-illness or loss of profits policy that protects the company against the financial loss caused by the death, serious illness or incapacity of someone vital to its success.
The payout can maintain cashflow, fund recruitment and training, safeguard loan repayments, and provide breathing space while the business resets operations. It’s continuity planning in its most practical form, keeping a business trading when its most valuable resource can’t.
Who needs it?
Key Person Insurance matters wherever success depends on a handful of people:
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• People whose relationships or technical expertise drive most of the turnover.
If a single absence would materially affect profit or debt-servicing, the business needs this protection within its continuity plan.
How Key Person Insurance works
The business applies for and owns the policy.
The key person is the life insured. On a valid claim, the insurer pays the business directly, giving it the liquidity to manage disruption.
Types of cover:
• Life only: Pays a lump sum if the key person dies or is diagnosed with a terminal illness. It’s the most cost-efficient way to secure catastrophic protection.
• Life with critical illness: Extends protection to diagnosis of serious, specified conditions. It’s useful where business interruption caused by diagnosis of an illness could hit revenues, breach covenants or delay key projects.
• Loss of profits: Pays a monthly amount to the business if the key person is unable to work due to accident or illness. It underpins continuity of business income, replacing up to 75% of profits whilst a claim is in payment.
How much cover do you need?
Insurers start with turnover and structure, but professional advisers can help clients take a deeper, more quantitative approach.
Turnover and profit contribution
Ask: What part of the business walks out the door when this person does?
Estimate the share of turnover linked directly to their role, client relationships, delivery, or sales generation. Then model the impact on gross profit and overhead absorption if those revenues stop.
Choose a policy term that reflects the dependency period, often three to five years.
Debt and loan protection
Identify banking facilities or director loans that rely on that person’s presence. Consider lender expectations for continuity and covenant support. Align the sum insured with the outstanding balance and the time likely needed to restructure or refinance.
Recruitment, training and ramp-up costs
Include realistic recruitment fees, interim support, and the cost of onboarding a replacement until they reach expected productivity. For instance, ou might allow six months’ ramp-up for a senior technical hire.
Operational resilience extras
Think beyond finances: penalty clauses, supplier or client retention work, marketing or business-development support to maintain momentum.
Many businesses segment cover, allocating part for cashflow, part for recruitment, part for loan protection.
Policy options and structure
Selecting the right structure determines how well the protection performs in practice.
• Level vs. decreasing term: Level term maintains a constant benefit, which is ideal for profit or continuity protection. Decreasing term tracks liabilities such as loan balances.
• Premium style: Fixed premiums aid budgeting; reviewable ones start out low but increase periodically. We generally recommend fixed premiums although reviewable premiums might suit
Protect your business’s future today.
Book your free exploratory meeting to see how ContinuityPoint can help you put the right protections in place.