One of the most valuable assets of most business is your staff; because they may have specialised knowledge, skills or contacts that are vital to the profitability of the business. This cover provides a financial safety net if a key member of staff dies or is diagnosed with a critical illness. Key Person Cover is a life cover policy purchased by the business on the life of one of your employees or directors.


The claim is paid directly to the company or partners, allowing breathing space to help keep the business trading as normal. The cover is there to protect the bottom line in the case of death or critical illness of one of your key employees. Just as it is necessary to insure your business for loss or damage to your assets, it is also vital to insure your people's skills and expertise.


This is any member of staff who has a direct impact on the business’s profits. It could be the business owner, director, sales person or any employee with specialist skills or expertise. Without these people, it is likely that the business would be severely affected.


The firm could face challenges like trying to replace the key person and the costs associated with that, dealing with the implications of losing contracts, experiencing a fall in profits and having to repay loans.


There are many benefits to Key person cover; it protects your profit, avoids recruitment costs to find a suitable replacement, protects against loss of profits whilst the business is disrupted, paying penalties for non or late delivery on goods and services, paying any company sick pay to the key person if the claim is related to a critical illness and provides confidence to nervous suppliers who may look for shorter credit terms.


Key Person Cover can protect sole traders who are personally liable for a business debt. If they died expectantly, any debt would be inherited by their next of kin. Tax treatment on the premiums and proceeds depend on why the cover is being set up. It is therefore important to have separate Key Person Cover policies to protect profit and ensure debts can be paid.