Keyman insurance

Keyman insurance is an important form of business insurance. There is no legal definition for Keyman Insurance. In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of the member of the business specified on the policy. The policy’s term does not extend beyond the period of the key person’s usefulness to the business. The aim is to compensate the business for losses and facilitate business continuity. Keyman Insurance does not indemnify the actual losses incurred but compensates with a fixed monetary sum as specified on the insurance policy.
An employer may take out a Key Man insurance policy on the life or health of any employee whose knowledge, work, or overall contribution is considered uniquely valuable to the company. The employer does this to offset the costs (such as hiring temporary help or recruiting a successor) and losses (such as a decreased ability to transact business until successors are trained) which the employer is likely to suffer in the event of the loss of a key person.
Who can be a Keyman?
A Keyman can be anyone directly associated with the business whose loss can cause financial strain to the business. For example, 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.