Key Person

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Key Person Calculator

There are many ways of arriving at the value of a key person and each situation will have to be viewed individually depending on the business involved, the key person’s area of speciality and their involvement in the business. When calculating the appropriate amount of cover needed you should consider the effect of the loss of the key person on the business i.e. would this directly impact on profits or the cost of hiring a replacement?

Here are two examples of how to help determine the value – the cost of replacing a key individual to the business and the loss of profits to the business.

Cost of replacing an individual to the business

Loss of profits to business

A typical way to consider this would be the costs of finding and hiring a replacement for someone with the same skills and knowledge. A simple formula which is commonly used would be to consider up to ten times the key individual's earnings for life cover with a lower figure used for critical illness cover (typically up to five times earnings).

Enter Details

Individual details

Name

Current Salary

£

Results

Life cover

-

Sum assured (10x earnings)

Critical illness
cover

-

Sum assured (5x earnings)

A simple formula which is commonly used looks at the key person's contribution to either gross or net profits and allows a time for recovery following the loss of the key person's contribution to the business. This calculator incorporates a recovery period for the business dependent on the profit figure used.

Enter Details

Individual details

Name

Gross or net profit?

Net

Gross

What is the average last 2 yrs profits?

£

Percentage of profits directly attributable
to key individual

%

Results

The appropriate maximum sum assured would be:

-

This amount would include any existing key
person cover

This tool gives a guide to the value of a key person. Where there is a greater in depth knowledge of the business's trading and future plans it is possible to use alternative methods. This is only a indicative guide and appropriate advice should be obtained.

Important legal information

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