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What is keyperson insurance and how does it protect your business?

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Michael Brown

Acting Editor

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Keyperson insurance can be a vital safety net for your business. Not only does it provide businesses with cover during turbulent times, but it can also give their owners with a peace of mind. Below we have explained what this insurance is, and how it can protect your business. 

What is keyperson insurance?

Also known as keyman insurance to some readers, this policy is similar to a combination of life and critical illness insurance. However, the crucial difference is that it is designed for companies instead of individuals as beneficiaries.

In essence, if a key person in a business dies or becomes critically ill, keyperson cover allows that business to claim compensation to mitigate the financial impact of their absence.

Who qualifies as a key person?

It is important to note that keyperson cover is not only limited to founders and CEOs of a company. Ordinary people can be integral to the day-to-day running of your business and can also be eligible for keyperson cover.

Consider this example, where the sole app developer at your tech start-up is critically ill. While this has happened, the business’s app has crashed and their absence means no one has the expertise to make the required fixes. While that person stays absent, your app remains broken which limits the revenue your company can receive.

In this instance, if you take out keyperson cover on your app developer then your business can claim compensation for their absence, meaning the financial loss you would have incurred is now covered to some extent.

This is just an example, and different positions within certain companies hold different value. As a general rule of thumb, as long as the absence of a certain employee in your company will cause substantial financial harm to your business, they can be insured for keyperson insurance.

In what instances will keyperson cover pay out?

Typically, keyperson insurance will pay out if your employee dies, is critically ill or is forced to take a prolonged period of absence. It will not cover instances where the employee left their role on their own accord, such as taking a position in another company.   

Where can I use this payout?

The insurance payout you receive can be used for a range of different purposes, including finding a long- or short-term replacement or to cover the losses your business is expected to suffer.

This is something you should consider before taking out any sort of policy as it should give you an indication of the level of cover you require.

Where to find the best keyperson insurance cover

The commercial insurance sector is incredibly complex, and this is reason enough in itself to use a broker. Not only do they have suitable knowledge of the sector, but they also have the necessary contacts to help you find the best deal, giving you access to options you may not be able to find on your own.

Speak to Watts Mortgage & Wealth Management Ltd to find the best policy for your unique business. Click here or call 01270 620 555 to get in contact with our preferred advisers today.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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