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Financial Protection Protection Insurance
Financial Protection Protection Insurance | Protection Insurance |
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Why have Key Person Protection cover? Whatever a key person’s role is, their loss could have disastrous consequences for any business. It might potentially mean: loss of profits, loss of contracts, loss of knowledge of the business and its processes, difficulties in meeting any loans the business has secured, or, even having to repay the loan the key person has taken out for the business. What type of cover is required? In essence, it is a case of a business insuring their key people for life/and or critical illness cover, and if they should die, or suffer a critical illness, the business is financially compensated. This cash injection can mean the difference between a business surviving or not. Business might even consider taking out income protection to help cover the cost of sick pay, or pay for the employment of a temporary replacement if the key person is ill and cannot work. Many businesses have to borrow funding in order to start up or expand, and often the ability to repay these loans relies of a few key people. How much cover is required? Multiple of Profits... Bearing in mind that one of the main objectives of key person cover is to protect the profitability of the business, it can make sense to start with profit. Generally, the following multiples are used: 2x Gross Profit, or 5 x Net Profit. However, these would be regarded as upper limits on a business as a whole, and where there is more than one key person, cover would need to be apportioned depending upon each key person’s contribution to that profitability. Multiple of Salary A further useful guide to the cost of replacement is a multiple of the salary and benefits package a key person receives. Generally speaking, between seven and ten times gross salary can be considered. Care should be exercised when using this method with shareholders, who may be taking a reduced salary, which does not reflect their real value. Proportion of Salary Roll A more complex method is to consider the key person’s contribution to turnover. Who should consider such protection? The precise way a business is formed will influence the precise way cover is set up, but the following categories should consider such protection: □ Limited Companies □ Shareholder □ Partnership □ Sole Trader The above are intended as guidelines only, and should not be taken as any form of recommendation or construed as advice. |
Financial Protection:
| Personal Accident |
| Income Protection |
| Critical Illness Cover |
| Term / Life Assurance |
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