All About Key Person Cover

Key Person Cover is a vital type of business insurance if you rely on only one or two employees to handle significant business processes and tasks. They could be a major partner, a talented employee, or even your company’s CEO. That’s because your business operations lie in their hands, literally. If they don’t show up for work, your business suffers.

Importance of Key Person Cover

Insurance protects you, your team, and your business from the effects of tragic events. It can be as minor as an illness or something more serious like a death in the family. Although there’s no way of preventing these from happening, getting some kind of insurance can help protect your team. It also will help keep your business afloat, especially if the employee involved is a key person in your company.

Types of Key Person Cover

There are types of Key Person insurance to address both temporary and permanent absences. Let’s take a look at each of them more closely.

Permanent absence cover

This type of Key Person Cover protects your business if a key person in your company has to take an extended leave due to illness or death. Here, the company owns the policy and makes the premium payments. That way, the company can claim the benefits when the need arises.

By having a permanent absence coverage, you and your stakeholders can buy time to decide the next step. Should you start looking for a replacement? Perhaps selling the business will be the best choice?


Key person income cover

The second type of Key Person Cover is called Key Person Income. This helps in the event when a key person has to go on leave for a long time to recover or deal with personal issues. This also helps keep the business running during a time when the income is negatively affected by the key person’s absence.

Key Person Income insurance also replaces business income lost when a person becomes disabled, regardless whether it’s temporary or permanent. Again, the coverage allows for breathing room to assess the situation and make the best possible decisions.

Just remember that Key Person Income insurance often has a hold period of 30 days. That means the key person has to be absent for 30 days before it takes effect. It also has a benefit time limit of 12 months.

Limitations of Key Person Cover

Key Person Cover is great, but it’s not for all kinds of businesses. If your company is a sole proprietorship with no employees, Key Person Cover is not necessary because the future livelihood of employees is not an issue.

Also, Key Person Cover is not the same as personal life insurance. You should still carry personal life insurance if you have dependants who will struggle financially in the event of your death.

Choosing the Right Key Person Cover

Do your research

The general rule of thumb for choosing Key Person insurance is to get as much as you can comfortably afford. Shop around to find the best rates and policy features. If you are buying a policy on the life of your key person or persons, look for term insurance, rather than whole or variable life, which isn’t necessary for a business buying Key Person Cover.

Check your company’s assets

For Key Person Income, think about how much money the business would need to survive each month without that key person. The policy or policies that you buy should fit comfortably into your budget and cover your short-term cash needs in the event of a tragedy.

Ask for discounts

Be sure to ask if the underwriting agency offers discounts when you carry multiple types of insurance with them. A properly insured business may sometimes need both types of Key Person coverage, depending on the necessary course of action if the key person dies vs. becomes disabled. Doing some careful consideration of how your business might handle either of these two events can help you decide on the right level of coverage.

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