Is there a maximum limit on the amount of key man insurance one can take out?

Question

We are a rapidly expanding business and wanted to know whether we are limited in the amount of key person cover we can take out based on our current figures or whether can account for our growth forecast?

Answer 1

There are no absolute limits when looking to protect a key person however guidelines are provided and any benefit level should be justified.

Most businesses when setting up keyman cover rely on one of two figures to set a level of cover.

• Multiple of Salary
• Multiple of Profits

Keyman insurance is designed to protect the profitability of your business, when looking to set the level of cover based on a mulitple of profits the guidelines for the upper limits on the company as a whole are 2 x gross profit or 5 x net profit. If there are a number of key people to cover the level of benefit would need to be apportioned according to each key persons contribution.

When basing the level of cover on a multiple of salary the guidelines set the a limit of between 7 and 10 x gross salary. When basing the level of cover it is important to consider the costs over and above lost profits such as the costs of recruiting and training a replacement.

This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 020 8432 7333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.