The amount of Key Man Insurance you will need will vary for every business, there isn’t a set amount. Key Man Insurance works in the same way as a personal Term Life Insurance policy.
Choose an amount of cover – normally a minimum of £5,000, you could get a policy for any amount, but the higher you go, the more questions and detail the insurer will need. Also the amount of cover sometimes depends on the age of the policy holder.
Choose a term – normally between 5 and 40 years but some insurers will go for longer. Most people take Key Man Insurance until retirement age.
Here’s some things to think about when deciding on how much cover you need.
- What debts would need to be paid and how much do they total?
- How much are recruitment fees to replace this person?
- Are there any immediate costs for you to continue trading?
- Could you use any External Consultants to help run your business?
- Could you outsource any work until recruitment completed?
- Would you need any Legal work – contracts etc
Every business would have different needs, but mostly you’re looking at ways to replace the work done by the Key Person in the business.
The easiest examples are sales roles, a sales person who you rely on or a sales director. If they are bringing in £100,000 of revenue per year and the business simply will not survive without this revenue, having a Key Man Insurance policy for that person which pays out £100,000 to your business in the event of their death might be a suitable option.
In this scenario, it means that the business would have a years grace to find a suitable replacement and still continue trading in the meantime.
It’s good to talk through the options with an expert, they can explain what other businesses in your situation have done and look at your circumstances to get a quote.