Key Man Insurance – because you can’t lose a critical resource

Businesses have their own identified key man (men) whom they would not want to lose. These key men contribute hugely to the profits of a business and hence it is a good idea to buy insurance for such individuals. Since a loss of a key man might mean loss to the business there is key man insurance to cover for such a loss.

Who is a key man?

An employee of a company who has specialized skills and whose loss may cause the company considerable financial loss can be termed a key man. These individuals might include

• Owners
• Senior directors
• Managers
• Research & development staff
• Key salesperson
• Operations manager and
• Other individuals with specialized skills beneficial for the company

However, it must be remembered that such an individual will remain a key man in the company so long as he meets the criteria of being a key man.

Who needs key man insurance?

1. Key man insurance guards against financial losses. Many companies opt for key man insurance in the form of life insurance or disability insurance or may be both. If yours is a partnership company you will need key man insurance to protect your company if any of your partners happens to die.
2. Such insurance is also required in order to secure a loan. Many lenders often require that one or more of the owners or employees of the company should purchase life insurance or disability insurance with the company that is named as beneficiary. The beneficiary may also be the lender.
3. You also need key man insurance if as an owner or partner you plan to merge with another company or enter any sort of agreement with another company based on financial or operational grounds.

How does key man insurance work?

There is a life insurance policy taken out on key employees of the company. Premiums are paid for by the company and in the event of death of a key man, the company can collect the proceeds of the policy. Say for example, your company has lost its key sales person who had very important clients in his account. When the sales person is gone, those clients may want to go to another company. This is definitely not a desirable situation and you would also have to suffer financial loss. If you can make arrangements to immediately replace the key man, good. If not, then you may benefit from key man insurance.