Opinion

Could Key Person Insurance Be The Most Important Insurance You Buy?

What happens to your scale-up if someone who’s critical to your success goes on long-term sick leave? Could you take on their workload? Or would you slow to a standstill?

If they’re a key player in your business, you’ll see a drop in both profitability and productivity. After all, they’ll have the deep knowledge of certain operations, as well as the valuable skills and client or supplier relationships. Plus, should the worst happen, you might need to pay to replace them.

Key person insurance mitigates against this. And, if you’re looking to raise funds, it’s often a requirement of investors. Let’s take a closer look…

Photo by Julien Flutto

What is key person insurance?

Key person insurance steps in to cover a loss in profits when an essential person at your company can no longer work – whether that’s due to critical or terminal illness, or even them passing away. These could include your founder, CFO, tech lead or even a salesperson – effectively, if you can’t afford for someone to be ill, they’re ‘key’.

The cost of this insurance depends on the individual’s circumstances, age and health (like life insurance products), as well as how long it’s taken out for and the level of cover. It’s usually worked out using either the person’s salary or how much profit they can create and how long that’d take to recover. But you can expect it to range from £10-£150 a month per person.

How quickly you can get covered also depends on the individual. Provided no red flags are raised about their health, insurance can be arranged almost immediately. Otherwise, they might need a medical to confirm a few details.

Photo by Mimi Thian

When do I need it?

As soon as possible in that transitional phase between start-up and scale-up. At this point, businesses often rely on one or two people in order to grow – and they can become among their greatest assets very early on in a company’s life cycle. It’s no wonder 53% of businesses would have to shut up shop in less than a year if they found themselves without a key person.

You should also be ticking this off your list if investment is on the cards or something you’re aiming for. Investors often require key person insurance before they front their money or within 100 days of doing so. From their perspective, it means you’re protecting the business from a significant loss of talent – and, more specifically, the key skill sets behind your success so far.

And they’re right to require it. Scale-ups can become unstable because they’re growing so quickly. Having the peace of mind that this vital business knowledge is effectively covered makes you that much easier to back.

How we can help

When it comes to scaling up, we’ve been there and done that – growing our last start-up into a top 50 UK broker. And we apply this understanding to the insurance programmes we now build for high-growth businesses. We know how your risks will evolve, and we help protect you from the worst while still enabling your growth.

So, if there’s someone in your business you couldn’t live without, let us know. We’ll walk you through getting them insured.

Photo by Austin Distel

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