What is Keyman/Person insurance?
It is an important form of business insurance, which is taken out by the business to compensate for financial losses that might arise from the death or extended incapacity of an important member of the business. Keyman insurance does not indemnify the actual losses incurred but compensates with a fixed monetary sum as specified on the insurance policy.
Since keyman insurance is more of a type of insurance policy it may include other insurance used for other business specific purposes, including:
- Buy/Sell Insurance (Shareholder Insurance)
- Debt Protection
- Revenue Protection
Keyman insurance can provide compensation for losses in four categories:
- Losses related to the extended period when a key person is unable to work
- Insurance to protect profits
- Insurance to protect shareholders or partnership interests
- Insurance for anyone involved in guaranteeing business loans or banking facilities
Who is the keyman in a business?
A key person can be anyone directly associated with a business whose loss can cause financial strain to the business. In a small business, it’s usually the owner or founders, the people whose absence would sink the company.
Why is keyman insurance important in a business?
The purpose of keyman insurance is to help a business survive the sudden loss of the person who makes the business work. The business can use the insurance proceeds for expenses until it can find a replacement person, or, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner.