Key Man Insurance or Key Person Insurance is essentially a form of life insurance for businesses. It is generally taken out by a business to compensate for financial losses that would arise from the death or extended incapacity of the key individual(s) of the business specified in the policy, and in turn ensure the continuity of the business.
There are generally three categories of loss for which Key Man Insurance can provide compensation:
- Protect losses related to the extended period when a key person is unable to work by providing temporary personnel and, if necessary, financing the recruitment and training of a replacement.
- Protect profits such as offsetting lost income from lost sales or contracts; or losses resulting from the delay or cancellation of any business project that the key person was involved in; or loss of opportunity to expand, loss of specialised skills or knowledge.
- Protect business & director loans, overdrafts or investments. The value of insurance arranged can be used cover their repayment in full, or to assist in generating continued profit (as above) to help make any monthly payments.
As a result, a Key Man or Key Person can be anyone directly associated with the business whose loss can cause financial strain to the business. For instance, they could be a Director of a company, a Partner, key sales people, key project managers and people with specific skills or knowledge which is especially valuable to the company.