How Key Man Insurance can help protect the life of a business?

In every business, there is always the most productive employee that pilots the business affairs, the person whose exit will shake the business to its core foundation……. That person is the business’ KEYMAN.

Most people are familiar with life insurance policy and how it compensates the insured family in the case of demise. However, not so much is known about the Key man insurance policy that keeps business running in event of loss of the business propeller, the key employee.

Keyman insurance helps a business recover from the loss of her front man. Individual talents in businesses varies and so does their input and output which when converted to relevance, makes certain persons the rear head of the firm after the business owner. Every  business has a number of people who contribute significantly to the running and growth of the company. Its only sensible to insure against untimely demise of such individuals to keep the business from total shut down when such key employee is no more.

Key Man Insurance

Keyman Insurance is an insurance policy where the premium payer is the employer, the life to be insured is that of the employer’s most valuable employee (keyman) and the benefit, in the case of claims, goes to the employer to use in keeping the business running and operational in event of the demise of the insured employee.

There are numerous benefits of insuring a company’s keyman and as far as the list goes, no single reason is less beneficial in the insurance chain. The advantages can not be emphasized and the absence of it can have fatal consequences.

  1. Keyman insurance protects businesses against financial shutdown in event of unfortunate death of the key person.
  2. The directors can also safeguard their immediate family from getting affected by the various business cycles the business has to encounter.
  3. Such heightened sense of importance will boost the morale of the insured employee which will readily convert to higher productivity and helps secure his stay in the company.
  4. It helps in keeping the price of the company’s shares stable in case of death of the keyman. If investors are assured that any financial loss from change of management as a result of the death of their usual go-to person, they wont have to start discharging their shares immediately after the death of such person.
  5. It places a high value to a keyman insured company. In the case of a business that is being put up for sale, prospective buyers are more likely to put a higher value to the company if they know that it has a monetary back up to meet the replacement of its key employee.

When a company purchases a life insurance policy on the key employee, pays the premiums and have the benefitting rights to that policy, when the insured key person dies, the company receives the insurance pay off. The reason this insurance is of utmost importance is because the death of a key person in a small company often causes the immediate death of the company. The basic reason for the key man policy is to help the company survive the tragedy of loosing the person who pilots the business. The company can use the proceeds for expenses until it can find a replacement or in some dire situations, gives the company some options other than outright bankruptcy.

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