All businesses, regardless of their size, have key people – people whose contributions have a significant impact on the bottom line.

The loss of a key person is difficult for any business, but it is especially difficult for small businesses that rely more completely on the contributions of a few very talented people. In a small business, each employee usually has a more direct effect on the bottom line due to fewer employees interacting with customers, creating products and performing services. Small businesses typically don’t have multiple people to perform key job responsibilities.

How Does a Key Man Policy Work?

The policy is underwritten on the key person’s life however it will always be owned by the business itself.

Stage 1:
The key person dies or suffers a critical illness condition.

Stage 2:
The business makes a valid claim with the insurer.

Stage 3:
The insurer pays the sum assured directly to the business.

Stage 4:
Those keyman funds can then be used as the business wishes.

Reason to purchase Key Man Coverage

The loss of a small business employee causes a greater setback to the business while a replacement employee is found. A small business can lose a key person for a number of reasons:

• Disability
• Death
• Retirement
• Voluntary Termination

If the departure is planned, as in the case of retirement or voluntary termination, the business can prepare for the loss and take steps to minimize its impact. However, if the employee becomes disabled or dies, the loss is unpredictable and leaves the business exposed to financial, business, and other risks.

All business owners can plan ahead

Key-person planning can help small business owners offer attractive incentives to retain key persons, while planning for a potential business loss.