Keyman Insurance for Unpredictable Times
Different professions hold different views on the term “Assets” definition.
Ask any accountant, and they will probably tell you:
“Assets = Liabilities + Owners’ Equity”.
Many business owners consider:
“Assets = Customers + More Customers + Even More Customers”.
Being lawyers, our definition of the term “Assets” comprises:
“Assets = Anything which is of value”!
Need For Business Insurance
- Almost every business, regardless of size, has some form of insurance to protect its physical assets in the event of a natural or artificial disaster.
- Insurance policies can protect against physical damages to manufacturing facilities, plant and machinery, stock inventory, and office premises.
- These policies help mitigate any potential financial losses the business may suffer due to such an event.
Key Executives
- While most companies insure themselves against the loss of physical assets, few insure themselves against the loss of their most important asset – the “Key Executives” of the company.
- These “Key Executives” perform critical financial, business, and strategic management roles.
- Their presence in the company is essential for its success.
- Key executives are the backbone of any business, and their loss can have a devastating impact.
- Their presence in the company is vital to the company’s continued success.
- Therefore, companies need to have a plan to protect themselves from this potential risk.
Keyman Insurance
Have you ever considered if your business could continue without you as a business owner?
Have you ever considered what might happen if one of your key employees could not work?
You should plan what to do if you or one of your key employees cannot work. This could help ensure that your business can continue to operate even if something happens to you or one of your employees.
- Keyman insurance is specifically designed to financially protect a business from the potentially devastating effects of a key employee’s prolonged illness or death.
- While “keyman insurance” cannot provide the business with an equally capable replacement employee, it can provide a cash injection during the critical interim period while the company recovers from the devastating loss of the essential employee.
Who Is A KeyMan?
- A keyman is a person who plays a vital role in the business.
- The general rule is that if the company relies on a specific individual for sales or is the only one with the technical knowledge to run a particular aspect of the business, then that person would be considered a keyman.
- Key individuals include but are not limited to company directors, sales directors, IT specialists, managing directors, and product development heads.
How Does Keyman Insurance Work?
- Keyman insurance is similar to personal life insurance, except that the owner and beneficiary of the policy is the company.
- This is because keyman insurance is company-owned life insurance specifically designed to financially protect a business against losing a vital team member.
Do I Need Keyman Insurance?
- Studies have shown that 50% of small business owners expect their business to fold within 12 months of losing a key employee.
- Keyman insurance provides such small business owners with peace of mind, knowing that if they lose a key employee, they would have a fall-back mechanism that includes funding to tide them over the crisis.
- A simple way to determine whether you need a keyman insurance policy is to answer the following questions:
- Do you have at least 1 key person in your business?
- Would the loss of this key person seriously impact your business?
- If you answered yes to any of the questions above, you should consider a keyman insurance policy.
Who Needs Keyman Insurance?
- Keyman insurance is helpful for all types of businesses.
- As the name suggests, keyman insurance protects the business from losing profits if the key person dies or can no longer work.
- However, if the business owner’s concern is ownership protection, it is more beneficial to obtain ownership protection insurance.
- Ownership protection insurance protects a business from being sold or shuts down if the owner dies or cannot run it.
What Is the Difference Between Critical Illness/Life Insurance & Keyman Insurance?
- A common misconception amongst business owners is that critical illness and life insurance policies, being of much lower costs, offer the same benefits as Keyman insurance.
- In reality, they offer vastly different benefits, and the benefits justify the difference in insurance premiums.
- While premiums are much lower, critical illness and life insurance policies are personal.
- They will pay out on the stipulated event, i.e. critical illness or death.
- Critical illness insurance pays a lump sum if the insured is diagnosed with a critical illness.
- Critical illnesses include conditions like cancer, heart attack, and stroke.
- Life insurance pays a lump sum of money if the insured dies.
- Keyman insurance policies differ from other insurance policies; protecting the business, not individual employees.
- Keyman insurance, being a corporate policy, would pay out on events detrimental to the business.
- Such events include when the key personnel for the business cannot work for any reason.
- This could be due to illness, injury, or even death.
When Should I Get Keyman Insurance?
- Procrastination is a vice that many people share, including many small business owners.
- Unfortunately, in the area of business planning, it can lead to their financial undoing.
- Many owners of successful businesses put off identifying their critical assets until it is too late.
In short, the time to get keyman insurance is now!
Without a solid business continuity plan, your business could crumble if something happens to a critical person. We have been protecting businesses like yours in case something happens to a key employee. Speak to us over video consultation via Lawyer Anywhere.
Important Disclaimer
The information contained here only provides general information on the covered subject. Nothing in this publication should be regarded as constituting legal advice concerning any particular business, operational or other situations you might face. Further, the law may have changed since the first publication, and the reader is cautioned accordingly. Please seek professional advice before taking any action.