Business Protection Calculator

A key person cover figure is three things added together: the profit that stops while the role sits empty, the cost of filling it, and any borrowing that falls due because the person has gone. On the defaults, 200,000 of annual profit contribution is 16,666.67 a month, so eighteen months without it is 300,000. Add 30,000 of recruitment cost and a 100,000 loan balance and the total is 430,000, of which the profit line alone is 69.77%.

The replacement period is the lever, and the guess

Every month added to it is another 16,666.67 on these figures. Twelve months produces 330,000, twenty-four produces 530,000. Same business, same person, a spread of 200,000 driven entirely by how long the seat stays empty, and that is the least knowable input on the page. The other two components are pass-through: recruitment cost and the loan balance enter the total at face value and do not scale with time at all.

Profit contribution, not revenue

The gap between those two is where this calculation most often goes wrong. A salesperson bringing in 200,000 of revenue at a 30% gross margin contributes 60,000, not 200,000, so entering the revenue figure inflates the profit component more than threefold. The model also assumes output falls to zero for the whole period, which rarely happens: colleagues absorb part of the load and a replacement ramps up rather than switching on. The profit component reads as a ceiling rather than a central estimate.

The loan line is the easiest one to double count

It is the only component here that is a hard number rather than an estimate. It belongs in the total where the borrowing actually falls due on the person's death, which is usually where a personal guarantee from them sits behind it or the facility carries a clause to that effect. Where the lender has already required its own cover over the same debt, or where the loan simply continues on the same terms with the business still trading, adding the balance here counts it twice. On the defaults it is 100,000 of a 430,000 total, so the difference between including it and leaving it out is close to a quarter of the answer.

Who counts as a key person

IAS 24 puts key management personnel alongside those holding control or significant influence as a defined class of person connected to a reporting entity. The commercial question is wider than the accounting one. The person whose absence costs the most is not always on the board: a single engineer holding the only working knowledge of a system, or a chef whose name fills the room, can carry more profit than a director does.

Cover is not a premium

The output here is a sum insured. IFRS 17 describes an insurance contract as one under which the insurer accepts significant insurance risk by agreeing to compensate the policyholder if a specified uncertain future event adversely affects them, and that conditionality is the whole product: nothing is paid unless the defined event happens. What a policy costs depends on age, health, term and the sum insured, and comes from an insurer's own pricing rather than from any arithmetic on this page.

What sits outside the model

Tax on premiums and on any payout, which varies by jurisdiction and by what the policy is written for. Whether a lender would in fact call the loan. Cover already in place elsewhere. Partial recovery of the role's output, and inflation across a long replacement period. Shareholder and partnership protection sit outside it too, because they answer a different question, funding the purchase of a departed owner's shares rather than replacing lost trading profit.