How to Cancel Key Person InsuranceProcess, Considerations & Alternatives

Valid reasons to cancel key person insurance:

• Key person has left the business - If the insured person no longer works for you, the policy serves no purpose
• Business sold or closing - If the business is being wound down or sold
• Key person risk has reduced - If you have built sufficient team depth that no single person is critical
• Retiring key person - If the insured person is retiring and will no longer be involved
• Switching to a new policy - If you have arranged better cover elsewhere (ensure new cover is in force first)

Think carefully before cancelling for cost reasons alone. The premium is typically modest relative to the risk being covered.

The process to cancel key person insurance:

1. Contact your insurer or adviser - Let them know you want to cancel. If you arranged the policy through an adviser, contact them first
2. Provide written notice - Most insurers require written cancellation (letter or email)
3. Confirm the effective date - Cancellation usually takes effect from the next premium due date
4. Stop the direct debit - Once confirmed, cancel the direct debit to prevent further payments
5. Keep confirmation - Retain written confirmation of cancellation for your records

The process is straightforward and usually takes just a few days. There are no exit fees or penalties for cancelling.

Before cancelling your key person insurance, ask yourself:

• Is the key person still critical? - Has the business genuinely reduced its dependency, or are you just used to having them?
• Can you get cover again later? - If the key person's health has changed, getting new cover later may be expensive or impossible
• Are there contractual requirements? - Do loan agreements or investor terms require you to maintain key person cover?
• What would happen tomorrow? - If the key person couldn't work from tomorrow, could the business survive financially?

If the answer to that last question gives you pause, the policy is probably worth keeping.

If cost is a concern but you still need some key person insurance, consider:

• Reducing the cover amount - Some insurers allow you to reduce the sum assured, which reduces premiums
• Switching to a cheaper provider - Compare the market for better rates (but ensure new cover is in force before cancelling the old)
• Reducing the term - If you only need cover for a few more years, a shorter new policy may be cheaper
• Life-only cover - If you currently have combined life and critical illness, switching to life-only significantly reduces premiums

Speak to a specialist adviser who can help you find the most cost-effective way to maintain appropriate cover. Compare providers for current rates.