Key Man Insurance

A key man insurance policy is a life insurance policy that the Business / Company takes out on the life and Disability of a key employee, member or shareholder. Dread disease or Severe illness cover can also be considered.

What is a key person

A key person is someone who is fundamental to the running of a business/ company , who through their knowledge, skill or expertise, contributes to the profitability of the business. In the same way that a business insures it’s physical assets, so to should it protect itself against the loss of its most valuable assets being the key member/s of staff. For smaller businesses the key person may be the owner or founder whereby he / she is the only person capable of running the business.

Why should a business consider having a key man insurance:

•  If a key man in one’s business or company should die or become disabled the business will suffer a financial loss as it may struggle to replace that persons knowledge , skill or expertise easily.

•  If the business does try to find a suitable replacement it is going to more than Likely have to compensate the new employee handsomely and may even have to lure this person from a competitor with an attractive offer. consider what it would take to source an employee with similar knowledge, skill and/or expertise, the costs that may be incurred in employing a head hunter to fund this person, the cost of possibly having to pay for this person to relocate.

•  If the business is unable to find someone who is an exact match in terms of the key persons skills, knowledge or expertise it will have To possible look at up- skilling a new or existing employee. This may cost money and will also take time during which the business’s profitability may be affected.

• If the business is unable to find someone who has the key persons knowledge, skill or expertise, it may have to consider changing the manner in which it does business or the nature of the business. The business will need to have funds available to ensure that this transaction has as little impact on profits as possible.

Having a key man insurance policy in place will go a long way in filling the gap in ensuring the business has the resources at its disposal to tide it over this potential difficult period.