This calculator uses the key person’s contribution to the profits of the business as a suggested amount of cover.
Loss of profits to the business
The loss of profits to the business is a good start point to calculate the cost of replacing a key person in the business. There are many other ways to do this, and other factors may need to be added, particularly for highly specialised industries where the costs will be higher.
For key people who directly influence money coming into the business (such as sales staff) use gross profit. For key people responsible for managing cash flow (such as a managing director) use net profit. Commonly used multiples are applied. The calculator uses a profit multiple of 2 for those whose contribution is to gross profit and 5 for contribution to net profit.
Use the average Profit after Tax for the last three years.
The figures should ideally be obtained from financial statements. The higher the profit, the higher the cover amount required.
Suggested key person cover for
The results are based on the information provided above and the suggested cover amount is a guide only. Appropriate advice should always be sought where there is more in-depth business knowledge.