Key Person Income Protection Insurance


Key Person Income Protection

While key person life insurance pays out if an employee dies, key person income protection insurance provides replacement income if a crucial staff member suffers an illness or injury causing them to be unable to work for an extended period.

This unique cover pays monthly benefits to the employer to help cover lost productivity and revenues associated with a key individual being out of commission and unavailable. It can help bridge gaps for UK companies reliant on just a few talented people driving results and helps keep people with an income even when not contributing to the business. 

How Does Key Person Income Protection Work?

Key person income protection functions by having the employer take out the policy on a vital employee and paying the premiums. The monthly payout level is calculated based on the key person’s economic value including factors like income they produce, sales they are responsible for, costs to temporarily replace their work, and overall financial contribution.

If the key staff member then becomes ill or injured and cannot work, monthly payouts to the business commence after an initial waiting period of typically 2-8 weeks from the health event triggering disability. This is called a deffered period. Payouts continue for usually 12-24 months as the individual recovers and returns or a permanent replacement is found. The business utilises these monthly funds to cover lost productivity, hire temporary staff, make operational changes, and essentially bridge the financial gap during the key person’s absence. It can also be used to pay the life assred wages.

In essence, it functions as salary continuance for crucial company members. The payouts replace income lost when top performers can’t work while recuperating or undergoing treatment.

How Can UK Companies Benefit from Key Person Income Protection?

There are several advantages this unique coverage provides. It replaces income lost if a top performer can’t work to avoid revenue declines. The monthly funds support maintained operations rather than a single lump sum. Tax deductible premiums and tax-free payouts for companies also make it affordable. Having a plan avoids panic if a vital employee suddenly falls seriously ill. It demonstrates duty of care for employees and values their welfare. The payments can also facilitate pivoting directions if a key person needs extended recuperation. Key person income protection fills a unique gap life insurance does not. It replaces income rather than just providing a single payout if an employee dies.

Who Needs This Type of Cover?

As with life insurance, smaller companies reliant on a handful of employees tend to benefit most. Industries likely needing cover include professional services firms leaning on rainmaker partners or directors, tech startups with an engineering or product innovator powering technology, medical practices relying on a surgeon or specialist driving patient referrals, contractors or trade businesses with an owner whose relationships secure projects, companies undergoing executive transition who can’t afford disruption, and any organization lacking redundancy where one individual’s output is disproportionately impactful. Essentially if your business success depends heavily on just a few skilled people, key person income protection merits consideration in the UK.