What is Keyman Insurance?
It is life insurance availed by the firm on the life of the Key Person or Partner /Director of a Business.
- Your firm/company is the owner of the plan.
- It pays the premiums due to the insurance company
- It is also the beneficiary of the policy.
- Your company will receive the claim proceeds in the event of the death of the insured key person.
Why does your business need keyman insurance?
The following are the reasons why your business needs keyman insurance;
- To mitigate the loss of revenue
- To mitigate the loss of income
- To ensure business continuity
- To provide confidence to creditors and banks
- To provide confidence to suppliers and customers
- To protect the interests of fellow partners and shareholders
- To protect the interests of employees and contractors
- To facilitate venture capital and angel investment
How does a Keyman policy work?
Let's begin with a discussion of what risks your company potentially faces and their impact;
|
Event |
Impact on your Business |
|
Company Car Breakdown / Accident |
Very Low |
|
Office Equipment Damage |
Low |
|
Fire or Damage to Office Building |
Medium |
|
Fire or Damage to Factory |
Significant |
|
Loan Recall by Bank |
High |
|
Loss of Key Employee |
Very High |
|
Loss of Partner / Owner |
Extremely High |
Keyman insurance is a simple and cost-effective solution that provides financial security and certainty for a business in the event of a key person's death.
Your business can take out a Keyman Insurance policy on the lives of key people like the Owner/ Partners/Director(s) and your company's indispensable staff members.
It provides your business with the necessary capital infusion at its most vulnerable phase, helping it sustain and endure the loss of its vital employee or Partner/Director.It ensures business continuity by providing a cash lump sum in the event of death, disability, or critical illness to the Key Person/Partner/Owner of the business.
Leading insurance companies like Zurich, MetLife, Friends Provident International Salama, & LIC International provide a wide range of Key Man Insurance plans in the UAE.
They also provide a wide range of riders like Critical Illness Benefit, Disability Cover, and Dismemberment benefit as well.
Partnership Protection
Partnership firms typically have a buy/sell agreement. It is a legal contract that sets out how a partner's share of a business may be redistributed on death, incapacitation, or exit intent of the partner.
Keyman insurance can be used to fund this buy/sell agreement. It is taken on the lives of all partners to ensure the availability of funds enabling the surviving partner(s) in a business to buy the shares if one of the partners dies, becomes terminally ill, or suffers a critical illness.
Business Loan Protection
Many businesses take out loans to expand their operations. But their ability to repay will often depend on a few key people. Business loan protection is also a form of Keyman insurance taken out to cover a loan or facility.
It can help the firm repay the borrowing in the event of the death or disability of such key people.
Personal Guarantee
Owners / Partners / Directors of a company typically provide a personal guarantee for business loans, making them jointly and severally liable.
Having Keyman Insurance in place will also help protect their personal assets should the owner or one of the Partners/Directors die or suffer a critical illness.
The Indispensable Andrew Carnegie, the American industrialist, and philanthropist, once said,
"Men and women, not machines, are the real source of profits in any business. Take away my factories, my plants, take away my railroad, my ships, my transportation, take away my money, strip me of all these, but leave me my men and women and in two or three years, I will have them all again."
Frequently Asked Questions
Who should get keyman insurance?
If your business depends on a few key people for its revenue, profits, sustainability, and growth. In that case, such key people's loss continues to be a vital risk for your business.
The following are examples of key people in a business.
- Directors or Partners in a Firm or a company
- Owner, Promoter, and Founder of a firm
- People holding key positions in a company and whose talents are difficult to replace
- People with special skills vital to the growth and sustenance of the company
Is Keyman Insurance expensive?
Keyman Insurance is very affordable, typically the annual premium is much less than 1.00%(one percent) of the cover amount. Depending on the age, lifestyle, and health condition of the insured, it can be higher or lower as well.
What is the typical term of the cover of Keyman Insurance policy?
The term of the policy depends on various factors like the age of the key person/Partners and the personal choice of the stakeholders of the company.
It can be availed for a term between 5 years and the whole life of the insured.
What is the use of Keyman Insurance?
The Insurance proceeds are typically used for the following;
- Pay off the liabilities of the firm to banks, suppliers, and other debtors to ensure adequate liquidity in the business
- To buy out the shares of the deceased partner without affecting the business cash flows
- To mitigate the loss of revenue/profits due to the Death or Critical illness of a Key person or Partner.
How long does it take for a payout in the event of a claim?
It usually takes 1 - 4 weeks working weeks after submission of the claims form and the relevant documents to process and payout a claim.