Keyman Insurance; Definition and Why You Need It

No one talks about the miseries business owners and business partners go through when death snatches their critical employees. It’s a tough journey of loss, business disruption, and rehiring challenges.

Keyman insurance policy is a type of life insurance that compensates a company for the death of a critical employee. The sum assured can be used as a pay-off to descendants or for the ownership interest connected to the deceased. 

Business owners or business partners should consider getting this insurance policy. Reason? With a keyman policy, you are assured of your company’s continuity and stability.

To ensure that no beginner or intermediate entrepreneur is left behind, I will cover the following in this post:

  • The definition of keyman insurance
  • How a keyman policy works
  • Why you should get a keyman insurance
Keyman insurance policy

Let’s delve in!

What Is a Keyman Insurance?

A key man insurance policy is an agreement between a business or partnership and an insurance company on the life of a key employee.

The business or partnership pays premiums to the insurer and receives an agreed amount in case the key employee passes on. 

How Does Keyman Insurance Work?

It’s good to note that this insurance policy is applicable in two establishments:

1️. Business

In this case, the business is the one that pays the premiums to ensure that it continues to run smoothly even after the employee’s exit.

This policy achieves this by covering revenue losses, recruiting, and training costs once the key employee is gone. 

Who should you insure in your business?

  • Executive staff such as the CEO
  • Top salesperson 
  • Top leaders such as the general manager 

2️. Partnerships 

Here the partnership is responsible for making premium payments insuring the life of a key partner.

If the partner dies, the payment from the insurance company helps maintain the establishment’s stability by covering debts and buying out the deceased partner’s share to avoid family interference in the business.

Note that in partnership, the key man insurance is mostly combined with a buy-sell agreement.

In this document, business partners state clearly how the buy/sell process will play out when they pass on.

If the deceased had loans that might destabilize the partnership, the payment is also used to cover that, allowing for a seamless transition and stable business operations.

It is important to note that keyman insurance covers different scopes, including:

  • Profits Protection

This covers lost income from lost sales or losses connected to delayed business projects that involved the deceased.

  • Shareholders and Partnership Protection

In this case, the compensation helps the shareholders or partners buy off the financial interests of the deceased.

  • Debt Offsetting

Here any person involved in guaranteeing business loans is insured. Hence, the value of the insurance coverage is determined to equal the guarantee value.

Why Get a Keyman Insurance?

A businessowner signing a keyman insurance policy

If you’re a businessperson or partner, there’s a sure way to stabilize your business – keyman policy!

But you’re perhaps wondering why you should add this to your insurance covers. 

Well, here are 4 reasons why you should get keyman insurance:

1️. Sum Assured

In case of the death of a keyman, your business will receive a sum assured to deal with the loss and resulting challenges. 

People don’t talk about the hit companies get when a keyman passes on, for example, a CEO or a top salesperson. 

Finding a replacement is an extreme sport that requires financial resources. Fortunately, the sum assured allows you to conduct a recruiting and training process, finding the right candidate for the position.

2️. Financial Help for Family

Sometimes the company is going through tough financial phases that limit it from extending financial help.

Thanks to the keyman policy, you can use the sum assured from the insurer to help the deceased family.

3️. Talent Retention

Getting insurance for a keyman influences them to attach their vital role to the company, feeling valued.

As a result, they become highly motivated to work at your company. They also become highly productive to enhance the business’s output as they know it will impact their beneficiaries.

Remember it’s a rare occurrence in Kenya that you can use to attract and retain top talent in your business.

4️. High Valuation

If you plan to sell the business in the future don’t panic because the keyman policy makes things better.

How – you ask?

Keyman policy increases your business valuation, giving it a premium resell value. Hence, you get to enjoy premium prices when reselling.

Also Read:

Frequently Asked Questions

What Does The Keyman Insurance Stand For?

Keyman insurance policy stands for an employee who is highly essential to the operations of your business, for instance, the CEO or top salesman.

What Are The Disadvantages Of Keyman Insurance?

Keyman insurance is a great backup plan for any business. However, the policy does not cover a key person if they choose to leave your company for retirement or to pursue employment in another company.

Is Your Business Safeguarded?

Examples of keymen in a company

Building a stable business is not a walk in the park. As a result, it’s crucial to have a plan to safeguard your businesses from losses related to your key employees. With a keyman policy, you enjoy adequate financial support when your key employee passes on or is permanently disabled.

So, do you have a keyman insurance? If not, book a brief consultation session today via 0703472299 or email me at centwarriors@gmail.com!

Written by Alex

Written by Alex

I have passion in helping people Make, Manage, Multiply & Protect Wealth.Download my Free Guide to Financial Freedom >>[ GET IT HERE]<<