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Key Person Insurance - My Insurance Hub

My Insurance Hub’s Experts Can Help You Find The Best Key Person Insurance To Protect Your Company By Insuring Key Staff, Including Directors.

What is Key Person Insurance?

Key Person Insurance protects a business financially in the event an important member of staff (Key Employee) passes away or is sick.

The business owns and pays for the policy and is crucially the beneficiary of any payments, not the employee themselves! The money can be used to help the business through a difficult time which otherwise may have resulted in it ceasing to trade.

  • Benefits are paid tax free to the company
  • Policies can be cancelled at any time without penalty

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Who are my Key Personnel?

Who is essential?

The business always needs to have an "insurable interest" in an employee in order to benefit should something happen to them, inevitably most policies are taken out on business directors and management, but these are not the only people who are vital to the success and indeed survival of a business.

Your Business could have a number of employees who are vital to the profitability of the company. This is not always simply the best sales person (although it often includes them), but can be individuals instrumental in the day to day running of the company. This could be someone with exceptional relationships to your suppliers, someone who knows the complex mechanics of your website or product.

Although every business is different here is a list of job roles you might want to consider:

  • Directors/Business Founder - The captain of the ship is doubtlessly important!
  • Top Sales People - These people are obviously essential to the running of a business and it takes time and money to replace them.
  • Individuals with technical expertise - Individuals with hard-to-replace experience and expertise in your industry or product. If they wern't there, could another member of staff do their job? If the answer is no then it's going to cost money to replace them. A bit of contingency planning is always recomended.
  • Web Developer - If you have an in-house developer, their loss could prove devastating should your main route to customers go down!
  • Managers - There may be key individuals on the management team instrumental in the day-to-day running of your business who would take time to replace, incurring losses during the transition and in recruitment and training.
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Key Person FAQ's

Key Person Insurance protects a company from loss of profit on the loss of a key employee, or to pay a debt or loan where its repayment would be compromised due to this loss.

Unfortunately the tax treatment of Key Person Cover premiums and proceeds is not straight forward. In most cases, the premiums will be treated as an allowable expense and any subsequent proceeds are likely to be treated as a trading receipt. 

However we recommend speaking to your accountant regarding the tax implications of any plan.

Who benefits! - Whilst both types of insurance are paid for by the company, a Key Man policy will pay out to the business, whilst a Relevant Life plan is for the benefit of the employee and their family!

These plans can only remain in place whilst there is an insurable interest; this means the policy cannot carry on if the employee leaves the business or is beyond retirement. 

Plans are usually short-term and between 5-20 years

The plan will have to cease at this time as there would no longer be an insurable interest.

Yes - A sole trader can take Key Person insurance on an employee, or on their own life with benefits paid under trust to their next of kin. This will help pay trading debts or assist trading activities in the event of death or critical illness.

Sole Traders 

Limited Companies 

Limited Liability Partnerships 

In most cases insuring for 2x the employee's contribution to gross profits is recommended although with more in depth analysis a more accurate figure can be obtained.

This will depend on the type of business applying for the cover:

A limited company or limited liability partnership would be the applicant, own the plan and pay the premiums. 

For Partnerships normally one of the partners owns the plan with proceeds paid via trust to all the partners.

Yes you can cancel the plan at any time with no penalty.

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