Keyman Insurance is payable on death or an earlier diagnosis of a Terminal illness (12 months or less to live). There is an option to include an amount payable on diagnosis of a serious illness such as cancer, heart attack or stroke etc.

Keyman insurance is to protect the company financially and not the employee. The company would take out a policy on the life of an employee. The plan would be owned by the company and the premiums will be paid for by the company. In the event of a claim a lump sum would get paid into the business.

Your business may need Keyman insurance if it would suffer financially if one of your key employees were to pass away or get diagnosed with a serious illness. Many businesses take out Keyman insurance to secure a business loan, to cover costs such as recruitment and training fees or to cover loss of profits.

A key person is someone whose death, critical illness, or disability would have a serious effect on the future profits of the company. In most businesses, there will be at least one person thought of as 'key' and should be covered by a suitable Keyman insurance policy. This could be someone who has a financial stake in the business or someone who plays a fundamental role in its success. You can often determine who is a key person by asking:

• Are there any loans or overdrafts that depend on a key person? 

• Would sales reduce?

• Would an employee's absence affect business expansion plans or ongoing projects?

• Would there be an impact of the daily administration or management in the business?

There's no set rule for working out how much cover you need. It depends primarily on the size of your business, how niche the expertise of the key person is, and the amount of turnover for which they are responsible. However there are two simple steps which should help you figure out an appropriate amount of cover that you may need: 

1. Identify the individuals you want to insure. 

2. Try and work out their specific value to your business, by identifying the portion of the net or gross profits for which they are directly responsible. 

Most insurers suggest insuring the person for twice the amount of gross profit they bring in or five times the net profit, but this can vary depending on your business circumstances and future plans.