How Much Does Key Person Insurance Cost in the UK?

Key Person Insurance is a type of business protection cover that helps companies if a key team member becomes seriously ill or dies. These individuals are often directors, founders or senior employees who play a vital part in the success and daily running of the company.

In the UK, the cost of Key Person Insurance can differ from one business to another. It depends on various things such as the person being insured, their age, their role in the company, and the amount of cover the business wants. On average, a UK company might pay from £10 to £100 per month for each person they insure, but some policies can cost more depending on the risk and cover level.

Knowing how much this type of insurance might cost can help businesses plan ahead. It is important for companies to understand why this cover is useful, what affects the price, and how they can find a policy that fits their budget while offering good protection.

Factors That Influence the Cost of Key Person Insurance

There are a few main things that affect how much a company will pay for Key Person Insurance. Some are based on the key person’s details, while others are linked to the business itself or the type of insurance chosen. Below are the main points insurers consider.

Age and Health of the Key Person

The age and health of the person being insured are very important. A younger person with no health problems is seen as less risky, which means lower costs. On the other hand, older people or those with past health issues may lead to higher premiums.

Insurers will often ask for health details. This can include past illnesses, family medical history, weight, and whether the person smokes or drinks alcohol. In some cases, a medical check-up may be needed before the policy is approved.

Role and Importance in the Business

Insurers look at how important the person is to the company. If the person brings in lots of income or runs major parts of the business, the risk of losing them is much higher. This could mean a higher cost to get the right level of cover.

The business may need to show how the key person affects income, staff, and customer relationships. Evidence such as sales numbers or leadership duties may be asked for during the application process.

Amount and Length of Cover

Policies with bigger payouts or longer terms usually cost more. For example, a policy that pays £500,000 over ten years will cost more than one that pays £100,000 over five years. The business needs to decide how long they want cover and how much money they would need if the person is lost.

Some businesses choose level cover where the payout stays the same. Others go for decreasing cover, which gets smaller over time and is often cheaper.

Type of Policy Chosen

There are different types of Key Person Insurance. Life cover pays out only if the person dies. Life and critical illness cover also pays if the person is diagnosed with a serious illness like cancer or heart disease. This second option costs more but gives broader protection.

Choosing which type depends on the business’s needs and budget. While life cover is cheaper, critical illness cover can help a company stay afloat if the key person survives but can no longer work.

What a Typical Policy Might Cost for UK Businesses

Let us look at some example costs. A small UK company wanting to cover a 35-year-old non-smoker with no health problems might pay around £15 to £25 each month for life cover worth £250,000 lasting 10 years. If they add critical illness cover, this could increase to £40 to £60 each month.

For someone older, such as a 50-year-old smoker, the monthly cost could rise to £80 or more. This is because age and smoking increase the chance of illness or death, making the insurance riskier for the insurer.

Small firms might pick a lower cover amount, like £100,000, to keep costs down. This could mean monthly premiums between £10 and £15. Medium-sized or growing businesses often insure more than one person, which can cost a few hundred pounds each month in total.

Some insurance companies offer group discounts if the business wants to insure several people at once. Also, fixed-rate policies are popular as they make it easier for businesses to plan ahead, knowing the cost will not change during the policy term.

How Insurers Assess Risk for Key Person Policies

Insurers must decide how likely it is they will need to pay out. This is called a risk check. The more risk they think is involved, the higher the cost. This is why they ask for a lot of details during the application stage.

First, they assess the health and lifestyle of the person being insured. If the person is in good shape, eats well, and avoids smoking, the risk is lower. If they have had major illnesses before, or lead a high-stress lifestyle, the risk increases.

The person’s job role also matters. For example, someone who works behind a desk is less at risk than someone who travels often or works in dangerous areas. Insurers ask about work duties to help figure this out.

Next, they look at the business itself. They may want to see how much profit the company makes, how many employees it has, and how it would cope without the key person. Some businesses have a backup plan or second-in-command, which can lower the risk and the cost.

All of this information is used to set a fair premium. The more complete and honest the answers, the smoother the process. Businesses that plan ahead and have good records tend to get better offers from insurers.

How to Keep Premiums Manageable

Although Key Person Insurance can seem costly, there are ways to make it more affordable. Choosing the right policy and taking a few careful steps can help lower the price without cutting back too much on the protection.

Choose the Right Type and Amount of Cover

One of the best ways to keep costs down is to pick the right cover. Businesses should work out how much money they would lose if the key person could not work for a year. This can be a good base for choosing the payout amount.

There is no need to over-insure. It is better to choose a sensible amount that truly reflects the risk. Some companies might not need critical illness cover and can stick with just life cover to save money.

Compare Quotes from Different Insurers

All insurance companies set their prices in their own way. Getting quotes from different providers helps find the best value. Some insurers focus only on business protection and may offer better deals for Key Person Insurance.

Using a broker can also help, as they often have access to more options and can suggest the best fit based on the company’s size and goals.

Keep Healthy and Share Accurate Information

The health of the key person plays a big part in setting the premium. Encouraging healthy habits like stopping smoking or regular exercise can lead to lower prices. Some insurers may even give discounts for certain health targets.

When applying, always give full and truthful details. Missing or wrong facts could lead to delays or rejected claims later on. Being open helps the insurer give the right quote and avoid any future problems.

By taking these steps, businesses can enjoy peace of mind knowing they are protected, without paying more than they need to.