03: Do we need key person insurance?

To decide whether you need key person insurance, think about the individuals who are key to the success of the business. They may be senior people – but not always. For example, a researcher who is developing a new product may be relatively junior but difficult to replace quickly or without delaying a new product or otherwise affecting future profits.

Draw up a list of anyone who might be such a key person, then estimate the financial consequences if, tomorrow morning, they died suddenly, could not work because of a critical illness, or were expected to be off work for months or years. The costs might include:

• The recruitment expenses, salary and other costs of employing the right person to take over the role (temporarily or permanently).
• Loss of profits.
• Delays in introducing new products or ideas.
• Loss of customers.
• Replacing lost business.
• Repaying business loans.

The impact is bound to vary according to the business and the individual, so this cannot be a comprehensive list.

If the sums involved are relatively small or easily managed, you probably do not need key person cover for that individual. But if the loss of the key person would create a need that would be hard to manage, you should consider key person protection as a priority.Last Updated