What is Keyman Insurance?
Keyman Insurance is a form of life insurance taken out by a business to compensate that business for any financial losses that would arise from a death or injury of an important (key) person to the business. This can also be extended to cover the business in case that key person is no longer be able to work for whatever reason.
Many businesses rely on a single person (sometimes a handful of people) who are responsible for the majority of the income to the business, it can also be that this person(s) has a unique or hard to replace skillset or experience, or even maintains relationships that are very vital to the organization. Therefore this type of policy is usually owned by the business itself in order to compensate the business for losses incurred in the case of loss of those key income generators or those who play an important role in facilitating and running the business.
How does it work?
There are four main categories of loss to a business that can be covered by Keyman Insurance:
Insurance for anyone involved in guaranteeing business loans or banking facilities – where the value of the insurance coverage is arranged to be equal to the value of the guarantee the business is receiving.
- Insurance to protect profits – for example a company can insure the lost income due to lost sales resulting from delay or cancelation of any business project in which the key person was involved in.
- Losses related to extended periods when a key person is unable to work – this is to provide temporary personnel and if necessary finance their recruitment and training to replace the key person.
- Insurance to protect shareholders and partnership interests – this type of insurance enables shareholders and partners to purchase shares of key partners in case those key partners pass away.
Why would you need Keyman Insurance?
This type of insurance can offer several advantages to a business as an additional benefit or extra payment to the key employee during his/her service period to the company.
Additionally, the company can seek to raise loans on the policy if there is a need for some financing. In case of the death of the key person, the company can use the insurance amount to cope with the loss through recruiting and training a suitable replacement.
Keyman Insurance serves as life insurance to protect the life of the business along with the people that depend on it.
With different options and different providers out there, Petra Insurance Brokers will work with you for the benefit of your business. Our goal is to provide you with clarity in order for you to make the best decision for your business.