Key Person Insurance for StartupsWhy Your Founding Team Needs Protection

Key person insurance for startups is increasingly important, particularly for funded companies. Here's why:

• Investor requirements - Many VCs and angel investors require founder key person cover as a condition of investment. It protects their capital if a founder dies or becomes seriously ill
• Concentrated risk - Startups typically rely heavily on 1-3 founders who hold critical knowledge, relationships, and vision
• Loan protection - If the business has loans secured against founders, cover protects against forced repayment
• Team confidence - Employees, co-founders, and customers gain confidence knowing the business can survive a key person loss

It is common for startup key person insurance to be required at these funding stages:

• Seed/Angel - Some angel investors require it, particularly for single-founder companies
• Series A - Most institutional VCs will require key person cover on founding team members
• Series B+ - Almost always required, often with higher cover amounts

The investment term sheet or shareholder agreement will typically specify the requirement, cover amount, and who should be covered. If your investors haven't mentioned it, raising it proactively shows maturity and risk awareness.

Calculating the right cover amount for startup key person insurance can be approached in several ways:

• Investment protection - Cover at least the total investment amount to date
• Revenue replacement - 2-5x annual revenue to fund finding a replacement and covering lost income
• Debt coverage - Any business loans or personal guarantees the founder has provided
• Runway extension - Enough to fund 12-24 months of operations while the team adjusts

For pre-revenue startups, a common starting point is matching the cover to the funding raised. Use our calculator to estimate your specific needs.

Key person insurance for startups is often more affordable than founders expect:

• Founders are typically in their 20s-40s, which means lower premiums
• Many tech founders are non-smokers with desk-based occupations - lower risk profiles
• Basic life cover for a healthy 30-year-old non-smoker might start from around £10-20/month for £500,000 of cover
• Critical illness cover costs more but provides broader protection

These are illustrative figures only. Actual premiums depend on individual circumstances. Compare providers for current rates.

The relatively low cost means key person insurance is rarely a significant budget item for funded startups, yet provides substantial protection.

Steps to get key person insurance for your startup:

1. Check your term sheet - See if investors have specified requirements for cover amount and who to insure
2. Identify key people - Usually founders and any critical technical leads
3. Calculate cover needed - Use our calculator or work with your adviser
4. Get quotes - Compare providers for the best terms
5. Board resolution - The company should formally resolve to take out the policy
6. Apply - Complete health declarations honestly and fully

The process typically takes 2-6 weeks from application to policy being in force, depending on whether medical evidence is needed.