Who Needs Key Man Insurance or Key Person Insurance?

Not a great many businesses have key man insurance, perhaps because they do not properly understand how it works. If the success of your business depends on the skills and drive of one of more key people and they were suddenly unable to work for any reason, what would happen to the business? If the sudden loss of your key person would negatively impact your business financials, sales, profits, goodwill or even the credit rating then key person insurance is for you.

Key person insurance is taken out by the business and the pays the premiums.  Such insurance will help to keep the business going until another person can be found to replace the key man. The payment can also be used to pay off other employees and debts should the business have to close down.

Some people confuse business succession insurance with key person insurance. The former addresses such issues as business transfer of ownership in the case of the loss of one or more partners. The latter protects the business from loss of revenue due to the key person being unable to continue working. It is possible that a business should actually have both types of insurance.

Key person insurance can protect the business in three categories:

• The cost of hiring and training a replacement.
• Loss of income due to the key person’s inability to work.
• It covers instances where the key person was involved in business loans or banking facility guarantees.

Key person insurance is a fixed sum that is delivered on claim as per the insurance policy specifications. So who can be considered a key person in a business? Anyone with specific skills that the company depends on for successful operation would be considered a key person. This person could be anyone from the director of the company to a project manager or key sales person.