The estimated need for key-person cover should connect to a financial consequence you can point at, not to a rule of thumb.
Key-person cover is business insurance intended to reduce the financial damage if a person critical to the business dies or becomes disabled under the policy terms. The “key person” may be an owner, specialist, salesperson or leader whose absence would reduce revenue, disrupt operations, trigger recruitment costs or affect access to finance.
The business is usually central to the ownership and benefit structure, but exact roles and tax treatment need careful design.
This cover does not solve succession or replace operational planning. Money can give the business time to recruit, repay debt or stabilise cash flow, but it cannot recreate relationships or knowledge.
Try this now
Name the people whose sudden absence would materially affect the business. For each, list the revenue, cost, debt or operational consequence and the likely recovery period.
Ask your advisor
- Who owns the policy, pays the premium and receives the benefit?
- How was the cover amount calculated?
- What legal and tax review supports the structure?
Business insurance ownership and tax consequences are fact-specific. Coordinate financial advice with the company’s accountant and legal adviser.