Insuring Key Assets: The Basics of Key Person Cover

In many businesses, the success and smooth running of operations often hinge on certain individuals whose unique skills, knowledge or passion make a significant impact. These individuals may be the business owners, major stakeholders or employees whose presence is integral to the profitability and succession of the business. This brings us to the significant aspect of business continuity planning known as Key Person Cover.

Key Person Cover, also known as Key Man Insurance or Key Person Insurance, is a policy taken out by a business to compensate for financial losses that could occur due to the extended inability to work or the death of a crucial member of the business. It is a vital tool for business stability, ensuring the financial security of the company in the event of unforeseen circumstances that affect the key person.

Understanding the Basics

The first step is identifying who the key person or people are within your company. They could be the CEO, project manager, business partner, top salesperson, or any individual whose absence can adversely affect the company’s profitability or operability. Essentially, a key person is someone whose skills, knowledge, relationships or authority are unique and difficult to replace quickly or cost-effectively.

Key Person Cover operates much like a life insurance policy. A company takes out a policy on the key person’s life, and should the unexpected occur, the company is named as the beneficiary and receives a tax-free sum specified in the policy. The funds can be used to cover temporary staff, recruitment of a replacement or compensate for any lost revenue.

Why it’s Necessary

No one can predict ill health, disability or untimely death. Such unforeseen tragic circumstances carry emotional weight, but it can also be doubly devastating for a company reliant on the key person’s input. This is where key person cover comes to the fore.

Key Person Cover serves as a safety net, providing monetary support to help businesses survive the period of adjusting, restructuring, or in worst-case scenarios, closing down the business in an orderly manner. It ensures continuity while mitigating the risk of financial loss. The cover is a safeguarding tool to maintain business relationships with clients and creditors by signalling financial stability, even in dire circumstances.

Obtaining Key Person Cover

To secure Key Person Cover, the business usually goes through an application process similar to a traditional life or disability insurance policy. The key person will need to provide consent, and there may be a need for a medical exam or review of medical history, lifestyle and the nature of the person’s role in the business. The amount of coverage typically correlates with the level of financial impact the absence of the key person would have on the business.

Whereas it is virtually impossible to place a monetary value on human life, Key Person Cover is not about valuing the individual’s life but instead attaching a monetary figure to key person cover the financial loss the business would suffer in that person’s absence.


In conclusion, Key Person Cover is an indispensable aspect of business continuity planning. Its primary function is not merely to insure the life of a key person but more importantly, to protect the business from substantial financial losses associated with the absence of that person. It upholds the financial stability and continuity of the business, providing the necessary buffer period for the business to breathe, refocus and plan its next steps in an unfortunate event. Every business that relies heavily on certain key individuals should seriously consider getting a Key Person Cover as a part of a comprehensive risk management strategy.