Your people are more important than your clients. And yes, you did read that right. As Richard Branson said “Clients do not come first. Employees come first. If you take care of your employees, they’ll take care of your clients.”
That’s also true for your directors; without certain key people, your business might flounder, stall or fail completely.
If you’re looking to protect the directors or anyone else who’s important to the success of your business, you might have already considered taking out additional insurance for key people. Maybe you’ve researched Key Person Insurance or Shareholder Insurance but you’re still not really sure what the difference is or which one you need.
In this article, we’ll explain (minus the jargon) the differences between Key Person Insurance and Shareholder Protection. We’ll also look at the different types of Key Person Insurance cover in more detail to make sure you’re not just ticking a box.
So, what is Key Person Insurance?
Key Person Insurance is a life insurance policy your company takes out on anyone who contributes to the profitability of your business. It means you get financial support if an important member of staff dies, or suffers a terminal illness, critical illness or permanent disability.
In short, it keeps your business ticking over with an injection of cash.
What is Shareholder Protection?
Shareholder Protection is like a will for your business. It means you and your shareholders can buy out a fellow partner or shareholder if they die or become seriously ill.
In short, it stops company shares falling into the wrong hands.
Key Person Cover VS Shareholder Protection
Key Person Insurance and Shareholder Protection both protect the future of your business in case something terrible happens. But each has a different purpose and outcome. We like to think of Key Person Cover as financial protection for the business and Shareholder Protection as ownership protection.
How Shareholder Protection protects the future of your business
Shareholder Protection is a policy on the life of a shareholder, and pays out for the benefit of the other shareholders. So if you’re worried about shares being gifted or sold to a competitor, or to someone who doesn’t have your business’s best interests at heart (an unwilling husband or wife for example), you might want to consider Shareholder Protection.
Ideally it’s a policy that’s taken out by all shareholders and provides remaining shareholders with the funds to buy out the deceased or ill shareholder.
How Key Person Insurance protects the future of your business
If you have staff members that are critical to your business (i.e. the business or customer trust would be seriously affected without them in it), you might want to consider Key Person Insurance cover.
It’s not the same as Life Assurance or Death in Service insurance, because the payout isn’t for the key person or their family. It’s a policy that’s owned by the business and pays out to the business.
Everything you need to know about Key Person Insurance
In our experience, businesses sometimes take out Key Person Insurance to tick a box (we get it; insurance is tedious and you have a lot of other stuff to think about).
So here’s everything you need to know about Key Person Cover (plus some insider tips) to help you work out which best suits your business.
How to make sure you’re not just ticking a box
There are two main types of Key Person Cover:
- Life only
- Life and Critical Illness
Lots of businesses opt for life-only cover as a way of saving money. But here’s the thing. You are FAR more likely to need to make a claim on critical illness cover. In fact, someone under the age of 65 is more likely to suffer a heart attack than die. And nearly 1 in 2 people born in the UK in 1961 will be diagnosed with some form of cancer during their lifetime (Cancer Research UK).
“Someone under the age of 65 is more likely to suffer a heart attack than die.”
Insider Tips for Key Person Cover
Insider Tip 1 – Get a payout for death following critical illness
If you have Life and Critical Illness cover and you make a claim for critical illness, the policy will normally end after a claim. But, most people don’t realise you can also add cover which pays out another lump sum in the event of death, even after a claim for critical illness has been made.
Insider Tip 2 – Think about your ‘future’ leaders
The younger you are, the cheaper and easier it is to get key person cover.
Younger people are more likely to get key person terms without the need for medical information and underwriting. And might expect to pay around £32 per month for cover.
Whereas Key Person Cover for someone in their 50s might take longer to underwrite depending on sums assured (because of the need for a medical) and could cost around £85 per month.
| Key Person Cover – Life and Critical Illness | Example monthly cost* (non-smoker) |
| 30 years old | £32.69 |
| 40 years old | £49.30 |
| 50 years old | £85.18 |
*male or female
Once cover is taken out, the terms and price will stand all the way through even if health deteriorates. So it’s worth getting in early and insuring future leaders, to lock in a cheaper price. Especially if you run a family business and plan to hand over the reins to your children one day.
Insider Tip 3 – Make sure you’re not underinsured
Underinsurance is only something you become aware of when you make a claim and realise you’re underinsured. But, with so many businesses trying to find ways to save money, underinsurance is worryingly common.
Maybe you took out Key Person Insurance in a hurry because your Investor insisted on it for all senior members of staff. It’s worth double checking that it’s not out of date and that it covers you for what you thought.
Or maybe on reading this, you’ve realised you have Shareholder Protection instead of Key Person Cover (or vice versa).
Want to chat it through and make sure you have the right insurance? We’ll ask you the right questions and tell you what you need (even if you don’t choose us).
Call 0118 923 5090 to speak to Simon.
Or ask about our FREE underinsurance check
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