Life insurance is a term commonly understood by everyone. That, life insurance in the form of KeyMan Insurance is relevant to business and essential to uplift businesses and keep them running is not so commonly known. Here are a few snippets on KeyMan Insurance for people who wish to understand the concept.
What is KeyMan Insurance?
This is an important type of business insurance policy taken on the key person or important people in the business to compensate the financial losses that may occur to the business because of extended incapacity or death of the key person/s. It is an insurance policy taken by the company in the name of the most important person to the business.
Why KeyMan Insuranceand how does it work?
There are some valuable people to every company who hold the key to several important decisions and whose death or incapacity may render a big blow to the business, very often causing a closure of the business or lead to irreparable financial losses for the company. The objective of
is to help the company survive the loss of the key player who takes the major business decisions. A company usually takes insurance on the life of a key employee and pays the premium. When any unexpected misfortune occurs to the key player, the company who has been paying the premiums on his /her behalf, becomes the beneficiary of the My Key Man Insurance policy.The company can use the returns from this KeyMan Insurance to compensate the financial losses by paying off the debts, if any, or compensating investors and employees and use the amount to organise the business till a replacement player is appointed or sometimes shut the business down in an orderly way.
Is KeyMan Insurance the same as life insurance?
Though KeyMan Insurance is about taking an insurance policy on the life and well-being of a key player/s, it is not the same as life insurance.Any new business venture, small or big, and companies, new or old and which are largely dependent on the key person for their functioning and who’s incapacity or death would cause losses to the business are usually the beneficiaries of this type of insurance and not the key man or his family as such.If the company is run by a single person and does not have anyone who depends on it, then KeyMan insurance may not be essential. On such a person’s death or incapacity, his spouse and family who are solely dependent on his income, personal life insurance comes to the rescue. Basically, KeyMan Insurance should be used for continuing the business in the absence of the key person.
Who qualifies for KeyMan Insurance?
Any person who contributes significantly to the growth of the business and whose absence would bring about remarkable monetary losses to the company qualifies to be called a key player and is eligible for KeyMan Insurance. This person could be the owner, or a person with a uniqueskill set or knowledge or experience essential for the business or someone who has significant responsibilities towards profit contribution and business development.The key man need not be a single person. It could be more than one person. Say, for example, the partners or founders in a partnership business venture.Take KeyMan Insurance only if the company depends substantially on him and if it is an employee, be adequately prepared for the contingency that may occur if the key person decides to leave.
How do you determine the amount or cost of KeyMan Insurance?
The amount to be insured should depend on the business and its monetary value. The insurance and the premium should be affordable. The insurance amount can be determined after taking due estimation of the extent of loss to the business in the absence of the key man. The amount should be adequate to keep the company afloat until a replacement for the key person is found. It is prudence to choose a policy amount that easily fits in the budget and which will compensate any short or medium term financial needs and losses, if any.
How to choose a KeyMan insurance policy?
Most insurance companies offer KeyMan Insurance. Do a bit of research and get to understand the various key person insurance policies and the terms and conditions outlined in them. Most experts in the field suggest a low-cost term insurance policy to be better for KeyMan Insurance than whole or variable life insurance and cash value policies. Compare the different quotes given by the agents and see how the policies work and actually perform in terms of your business.