How To Calculate The Key Person Cover Required

Posted on March 5th, 2011 in All Posts, Business Protection, Key Person Cover.

The aim of calculating the amount of cover required for the keyman is to estimate the impact on the company’s profits. The business will need a cash sum to allow it to continue to trade or and replace the keyman. There is no hard and fast way. Insurable interest  Below are some of the methods which are used:

The most straight forward of these are the multiple of profits calculations.

Net profit – Five times the average net profit for the last 3 years.

Gross Profit – Twice the average profit for the last three years.

A more technical method is the contribution to profits approach shown below:
Keymans Total Wage X Gross Profit X Expected Total Recovery Period in years
___________________
Total Salary Bill
To find out more as to whether your business needs keyman insurance ring Damian on 0800 6123367or enquire using the enquiry form.
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