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Key person insurance for indispensable collaborators

Sometimes, some collaborators are so indispensable in the daily operations of a business that if these individual people disappear unexpectedly, the business may also disappear altogether. These unfortunate events are also covered by some specific business insurance products, called key person insurance. What exactly is key person insurance? Which businesses might need it? How does it work, and how much does it cost?

 Key person insurance

What is key person insurance?

This type of business insurance covers the death or fatal illness of a collaborator which has become indispensable for the daily operations of a company. But not all companies are as much concerned by this insurance.

Principles of key person insurance

Key person insurance, or key man cover, or key person cover, is a financial protection to a business against the long term unavailability of an executive who can’t be easily replaced without the business suffering severe losses in the short term. Unavailability may be due to death or fatal illness, so it’s like a life insurance - but the company itself pays the premiums and receives the payoff. The key person can be the founder, a director, or one irreplaceable employee.

Target businesses

This kind of insurance product is suited for nearly all kinds of businesses which rely heavily on the personal performance of a few executives to continue their daily operations. Consultancies, clinics, medical practices, or small-trade companies are very much inclined to select this kind of insurance products. However, if the company only employs just the key person, this insurance may not be necessary.


Procedure and price

In order to know how much key person insurance can cost, it’s important to understand exactly how it works.

How does key person insurance work?

A policyholder - that is, a company - pays the premiums for many years, and the key person dies. The company receives the insurance payoff - that is, hundreds of thousands or millions of pounds -, and uses it either to keep paying the expenses until a substitute is found, distribute funds to the investors, honour debts, or grant their severance pay to all collaborators and terminate the operations in a “clean” way.

How much is it?

The price of the premiums for a key person insurance will usually depend on the duration of the policy and the extent of the coverage. Typical coverage can be worth £100,000, £250,000, £500,000, £750,000, £1 million and up. If a long contract is selected, then monthly premiums will be just worth a few pounds or a few dozen pounds. Be warned that many insurers will try to sell a whole or variable life rather than a term insurance, and this goes with more expensive premiums.

Rates for these premiums are only provided following a quote request, and there are many providers on the market. So the most efficient way to quickly find the most satisfying rates is to use the services of such websites as the one you’re browsing now and ask for quotes.


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