How Much Does Key Person Insurance Cost?
If you’re considering Key Person Insurance, one of the first questions you’re likely to ask is: “How much will it cost?”
The simple answer is, it depends. There’s no standard premium for Key Person Insurance because every business and every insured person is different. Factors such as age, health, occupation, the type of cover and the amount of cover required can all influence the cost. Rather than relying on an average price, it’s important to consider what your business actually needs to protect.
What Factors Affect the Cost?
When it comes to Key Person Insurance, there are several factors an insurer might consider when determining the cost.
Age
Age can influence premiums, as the likelihood of certain health events changes over time.
Occupation
The type of work the applicant does can impact the cost. For instance, office workers pose different risks from those in physically demanding roles.
Health
An insurer may consider health, medical history and other relevant information when assessing an application.
Level of cover
The amount of financial protection you choose can affect the premium. Higher levels of cover will generally come at a higher cost.
Type of cover
The type of insurance used in the Key Person strategy can also affect the cost. Depending on the circumstances, this may include cover for death, serious illness or total and permanent disability.
Policy structure
The structure, as well as who owns the policy, can impact the arrangement and overall cost.
How Are Key Person Insurance Quotes Calculated?
Getting a Key Person Insurance quote can seem complicated, but it ultimately comes down to assessing the person being insured and the cover a business is seeking.
An insurer factors in all the information listed above to understand the level of risk and determine the premiums they can offer. It’s important to understand that the quote isn’t entirely based on the individual. The business’s reason for taking out the insurance and the required financial protection it needs are also important considerations.
This is why two businesses looking to insure people in similar roles could be given different quotes. Their circumstances, requirements and the risks they’re looking to protect against influence the estimated premiums.
How to Choose the Right Level of Cover
Choosing the right amount of Key Person Insurance isn’t about picking the largest policy you can afford. Start by considering what your business could actually lose if a key person was no longer there.
Consider potential lost revenue, the cost of recruiting and training a replacement, and whether the business could continue to meet its debts and commitments during the transition. It’s also worth considering the client and supplier relationships they manage and whether their absence could affect these. Finally, consider how long the business could operate effectively while it finds a replacement or restructures.
Once you’ve considered these factors, you can determine what level of cover is realistic. The goal isn’t to have the biggest policy possible, but meaningful protection that provides financial support without creating an unnecessary premium burden.
Tips for Comparing Key Person Insurance Quotes
When you’re comparing Key Person Insurance quotes, it can be tempting to choose the lowest premium with the highest cover, but price shouldn’t be the only thing you consider. Before you make a decision, consider things like:
- The amount of cover
- Benefits included
- Policy definitions and exclusions
- Waiting periods
- Policy terms
- Ownership and structure
- How premiums may change over time
- Conditions attached to the cover
A cheaper policy may be attractive at first, but if it offers less protection or has an exclusion relevant to your business, it may not actually work in your favour, should you need to claim.
Where possible, make sure to compare like-for-like policies. Taking your time to understand what you’re getting for a premium can help you make a more informed decision about the protection you actually need.
Finding the Right Key Person Insurance
The right policy depends on who you’re protecting, the financial risk they represent, the level of cover you need, as well as the type of benefits selected. It’s important to strike a balance between having meaningful cover and choosing premiums your business can comfortably manage.
Understanding how much cover your business may need isn’t always a straightforward operation. It starts with understanding the financial impact of losing someone who plays an important role and finding cover that provides adequate protection.
At Panorama Financial Services, we have extensive experience working with businesses across various industries to develop Key Person Insurance strategies that protect what matters most. Our skilled advisers assess your business’s risks, determine where Key Person Insurance may fit, and explore cover options suited to your circumstances.
Frequently asked questions
Explore the answers to some common questions about the cost of Key Person Insurance.
There’s no standard price for Key Person Insurance. The cost depends on factors such as the person being insured, the level and type of cover selected and the circumstances of the business. The best way to understand the cost is to get a personalised quote.
Several factors can influence the premium, including the insured person’s age, health and occupation, as well as the type and amount of cover required. As every person and business is different, the cost will depend on the individual circumstances.
Start by understanding who your business relies on and the financial impact their absence could have. A financial adviser can then help assess your needs and arrange quotes based on your circumstances and the level of cover required.
Yes. Every business is different, so the right level and type of cover will depend on the people you rely on, the risks you face and your financial circumstances. Key Person Insurance can be structured around your business’s specific needs rather than taking a one-size-fits-all approach.
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