Key Man insurance or Key Person Insurance is the most important form of Business Protection and Succession Planning.
It aims to mitigate your business against financial losses arising due to the death or critical illness to an important member of your business.
Investopedia defines Key-man Insurance as follows;
"A life insurance policy that a company purchases on a key executive's life."
The company is the beneficiary of the plan and pays the insurance policy premiums.
Also known as "key woman insurance" or "business life insurance."
No organization is exempt from the impact on their business due to the loss of key personnel, no matter how large the company. Take Apple for example; its share price dropped 4% with the announcement of the loss of Steve Jobs, thereby wiping billions off their bottom line.
Who is the Key Man / Key Person?
Keyman is a person whose services contribute substantially to the success of the business. Generally he is a person with special technical knowledge who can only be replaced at a considerable cost of training.
The Keyman is generally identified by his qualifications, experience, responsibilities, remuneration and his contribution to his contribution to the growth of the company. The following factors would generally be taken into account while deciding the quantum.
- The amount of Business / Production / Strategy / Goodwill a person brings into the business
- The extent of loss which might incur on his death / disability
- The qualification of the Keyman.
- Experience vis-a-vis exposure in different capacities.
- His services in the company and previous record.
- Whether he is the only Keyman in the particular area or otherwise
Partnerships known as LLC companies and SME’s are particularly at risk if not adequately protected.
Small to medium sized enterprises are usually dependent on one or two key individuals who possess the vital skills, talent and experience to drive the company forward and they are fundamental to the long-term performance of the company.
In most cases the key men of the LLC companies are the partners, losing one or more of these individuals would have a detrimental affect not only on the business, but also to the family of the deceased or disabled.
Similarly with partnerships, if one of the joint-owners was to become ill for a long period, or for that matter dies, the survivor may not be able to continue in business.
This has a massive knock-on effect to the family of both partners financially and the wider group of employees.
Fundamental areas where key man Insurance can be of immense value
Covering financial Loss due to death or serious illness of key person, because of increased costs in hiring and training new staff members to fill the position of the deceased member.
Protecting losses arising due to loss of revenue from accounts handled by key person or losses resulting from the stoppage of projects handled by the key person.
Loss of Expansion Opportunities planned or managed by the key person.
Protecting the interests of partners in a LLC or FZC company. Allowing the surviving partners to buy out the shares of the deceased partner from the insurance proceeds.
For providing the Keyman Insurance policy as a collateral for bank and other third party borrowings.
Who needs to be covered?
In UAE Keyman Insurance is usually availed by organizations for protecting the following personnel;
- Stakeholders like Owner, Partner, Director, Chairman and Major Shareholder, etc….
- CEO, CFO, COO Etc.
- Key employees managing large Banking relationships, supplier relationships, collection of payment and client relationships
- Personnel holding key positions in the accounts, finance, IT, and the sales departments of a company.
How much cover is enough?
The ‘golden rule’ with key man cover is to buy as much as you can afford. It pays best to consult those who are known specialists in life cover. Call me on +97150-2285405 or click here to arrange a meeting to ascertain the right amount of Key man Insurance for your organization.
Does Keyman Insurance only provide life cover?
Insurance companies like Zurich International Life, Friends Provident Life, Metlife and Salama Takaful provide critical illness insurance covering up to 36 critical illnesses, disability insurance and various other riders along with life cover under Key-man Insurance plans.
The profit that your business generates is very important. So are the people who work to get that kind of profit. Key man insurance helps you protect both your profits, and people from and uncertainty and loss.
Register Now and I will contact you arrange a no obligation meeting to assess your company’s Key-man Insurance needs and offer unbiased advice on suitable solutions. Or call me on +97150-2285405.