Key Person Cover:

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Key Person Cover

A key person is any member of staff who has a direct impact on the business’s profits. They could be a business owner, director or any employee with specialist skills. Key Person cover is life insurance taken out by a business on the life of a crucial person in the business. It can include critical illness cover. The policy is paid directly to the company or partners.

Key Person Cover – product profile

For more information on main features, target market and costs – download the product profile.Business Protection Life Insurance product profile

Main features

Key Person cover helps to protect against the following business risks:
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  • Protect profits.
  • Loss of profits during business disruption.
  • Protect debts.
  • Paying back a business overdraft.
  • Covering salaries, dividends or loaned money through a director’s loan account.
  • Recruitment costs.
  • Pay penalties for non-delivery or late delivery on goods and services.
  • Being unable to repay a loan.
  • Paying an account upfront.
  • Sole traders who are personally liable for business debt.

Include Critical Illness cover

Your client can add comprehensive Critical Illness Cover. It protects your client’s business against the loss of a key person due to serious illness. The key features include:

  • Pays a lump sum on death or one of the specified conditions during the term, and your client survives for at least 14 days.
  • Covers 87* conditions – a full list can be found in the Business Protection key features document.
  • Enhanced claim payments for 17 conditions.
  • Flexible cover options – level, inflation-linked or decreasing cover.
  • Broad claim definitions – so your client’s claim is paid quicker.

*20 of these additional payments are covered under 1 additional payment condition – ‘Less advanced cancers’.

Key Person with Critical Illness Cover – product profile

Information on setting up a policy, risks, target market, features and costs can be found in the product profile.

Business Protection Life Insurance with Critical Illness product profile

Important information

Here are some important things you should know about our Key Person cover:
  • We won’t pay a claim if your client dies as a result of intentionally taking their own life in the first 12 months of the policy.
  • There is no cash in value at any time.
  • If your client chooses level cover, it won’t keep up with inflation and could buy less in the future.
  • To make a critical illness claim, the person insured must survive for at least 14 days after being diagnosed.
  • It’s not suitable for clients who want to protect their income if they’re unable to work due to accident and sickness.
  • If your client stops paying their premiums, their cover may cease.
  • For Critical Illness Cover, your client is only covered for the conditions and definitions listed in the policy conditions and no others.
  • Our Enhanced Children’s Cover policy is not offered as an option on Business Protection and Critical Illness Cover.

Cover options

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Level, inflation-linked or decreasing cover

There are 3 cover options available with Key Person cover:

  • Level cover – the amount of cover is fixed and won’t change. It won’t keep up with inflation.
  • Inflation-linked cover – the amount of cover increases with inflation. The premium increases with inflation x1.5.
  • Decreasing cover – the amount of cover goes down each year. The premium stays the same.
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Guaranteed increase option

Your client can increase the amount of cover for their employee if certain circumstance – like getting married or entering a civil partnership. If your client changes their cover amount, the premium will also change to reflect this. See the relevant Policy Terms and Conditions below for more information:

Money under arrow going up

Level, inflation-linked or decreasing cover

There are 3 cover options available with Key Person cover:

  • Level cover – the amount of cover is fixed and won’t change. It won’t keep up with inflation.
  • Inflation-linked cover – the amount of cover increases with inflation. The premium increases with inflation x1.5.
  • Decreasing cover – the amount of cover goes down each year. The premium stays the same.
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How much cover to recommend

The amount of cover you recommend will depend on the individual circumstances of the business, but could include the following options:

  • Multiple of profits (to protect business profit).
  • Multiple of salary (to cover replacement/recruitment costs).
  • Loan security (to pay off debt).
  • Recruitment costs.
  • Business start-up.
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Still unsure how much cover to recommend?

Losing a key person at any time can disrupt a business, particularly if it happens suddenly. Our Key Person cover calculator uses a key person’s contribution to the profits of the business to calculate the amount of cover your client will need.

Key Person cover calculator

Setting up the cover

Setting up the cover depends on the legal structure of your client’s business. It should be set up to match the needs of different business types.

Learn more about these options in our Business Protection adviser brochure.

Business typeWho should be insuredBenefits (separate policies
should be set up to protect
profits or clear debt)		How to set up the cover
Sole traderBusiness owner or key member of staffIf the key person is an employee (not the business owner) the cash injection helps the company protect profits or clear existing debt.Own life: the sole trader takes out the plan which is written in trust with their family/next of kin as the beneficiaries. If the sole trader dies, the money is paid to the beneficiaries (usually family or next of kin).

Life-of-another: sole traders can also take out Key Person Cover on an employee. The sole trader takes out the policy on a ‘life-of-another’ basis. Any claim is then paid directly to the sole trader.
Traditional or ordinary partnershipPartner or key member of staffIf one of the partners dies or has to take early retirement due to ill health, Key Person Cover can be used to pay off any trading debt or keep the business operating.

If the key person is an employee (not the business owner) the cash injection helps the company protect profits or clear existing debt.		Own life: if the key person is a partner, the plan is on their own life, written in trust for all the partners. Any claim is then paid to the remaining business owners (through the trustees).

Life-of-another: if the key person is an employee, one of the partners takes out the policy on a ‘life-of-another’ basis, placed under trust for the benefit of all the partners.
Limited companyShareholder, or key member of staffThe proceeds give the company a cash injection, which can be used to either:
  • Protect profits, or,
  • clear debt.
Life-of-another: the company takes out the policy on ‘life-of-another’. If a claim is made, the money is paid directly to the company.
Limited liability partnershipPartner or key member of staffThe proceeds give the partnership a cash injection, which can be used to either:
  • Protect profits, or,
  • clear debt.
Life-of-another: the partnership takes out the policy on ‘life-of-another’. If a claim is made, the money is paid directly to the partnership.

Free support for Business Protection clients

We’ve designed a 24/7 support network just for your clients. It offers legal, tax and VAT-advice, for free.

Business legal advice

With experts on hand, your clients get access to legal support - whenever it’s needed. This support covers areas including:

  • Employment law and tribunal claims.
  • Health and safety law and requirements.
  • Disputes, including tenancy and debt recovery.
  • Commercial and contractual disputes.
Learn more about our Business Care line.

Business tax and VAT advice

If your client is looking for business tax and VAT advice, we’re here to help.

A team of accountants and ex-HMRC employees are available to advise on areas including:

  • Tax and VAT relief.
  • Completing a self-assessment return.
  • Current and changes to tax rules.
  • Dividends paid from limited companies.
  • Receiving a tax investigation notice.

Advice is available 9am-5pm, Monday-Friday.

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LV= Doctor Services

Your clients can make the most of our support – available at no extra cost. With our Doctor Services, your clients can further support the health and wellbeing of their employees. They can access six medical services by phone or app:

  • Remote GP 24/7 – access to a UK doctor, meaning your client won’t have to take time off work to discuss medical concerns.
  • Prescription services – get a private prescription without needing a GP visit.
  • Remote physiotherapy – free video sessions with a trained UK physiotherapist.
  • Second opinion – check a diagnosis and get treatment advice, by video or face-to-face.
  • Remote psychological services –free sessions of mental health support from highly trained therapists.
  • Health MOTs – 25% off health MOTs, assessing overall health and identifying any health risks.
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