Keyman insurance, which is also commonly referred to as keyperson insurance, is one of the most important forms of business insurance. While there is no legal definition of key man insurance, it is generally used to describe an insurance policy that a business or corporation uses to protect themselves, in the unfortunate event that a key person defined in this policy becomes ill and incapable to work, or becomes deceased.
The insurance policy covers this persons usefulness to the business and how their assets will be handled when they are no longer capable of working for the company.
The aim of the keyman insurance policy is to compensate the business for any losses that are incurred, due to the absence of this staff member, director or shareholder. It also helps ensure that the business continues forward, after this person has become absent from the business.
Keyman insurance policies are generally used when there are very important individuals inside of a business, and there needs to be some type of protection plan in case they are no longer round.
Generally, employers choose to take out the insurance policy, on the life or health of a specific employee. They usually do this when that person’s knowledge, line of work, or just general contributions to the business are extremely valuable. These keyman insurance policies help offset the costs that are required in losing this key member of the business. For instance, having to higher a temporary worker or find a recruiting company could be very expensive. Also, the business could incur losses during this time, such as if there is a decreased ability to run the company successfully, as it did before with that person present. In this event, the employer is very likely to suffer from losses, after the absence of that key person.
This is why having keyman insurance is so important for the success of the business. Without it, companies are left with no direction or understanding of what to do when this person is no longer present inside the company. There are a lot of key players when it comes to the operation of a business. These could be the business owners, managers, CEOs, shareholders. Ultimately, in order to keep the business running in the unfortunate event that these people are no longer present, you need a key person insurance policy. This will help protect you and all of the other employees that work within the business. It will also provide the business as a whole with a foundation and plan, in case things do not go accordingly.
Some of the insurable losses that can be covered in a keyman insurance policy include things like losses if the business has to hire temporary help, losses resulting from delays or cancellations on projects that the key person was responsible for, losses of opportunities to expand the business or increase profits, loss of specialized skills or knowledge that the key person had an understanding of, losses in shareholders or partnership interests due to the absence of the key person, and much more.