Keyman insurance is an insurance taken by a company on the life of an employee (keyman) whose services contributed substantially to the success of the business . The object of keyman insurance is to idemnify business firm from the loss of earnings resulting from the death of a valuable employee. Loss of earnings may occur because immediate replacement of the keyman not be possible and it may take longer to train another person to perform his functions. Further, loss may occur if the keyman can be replaced only at considerable cost of training etc. to the company. The amount of keyman insurance can be estimated to be monetary value of the likely setback to the profits of the concern due to the death of the keyman.
Commonly keyman is referred to the owners, directors or top management of a company. However, this may not necessarily be accurate as some lower ranking personnel such key managers whose expertise or influence in the business is substantial to cause financial impact to the company profitability in the event of death of the manager. The major challenges of keyman insurance are:
- The top management, directors, owners or key personnel may not be insurable under the normal life policy due to health condition at the point of establishing the keyman insurance.
- The management of the company may not necessarily agree to the keyman concept as they may think that the company is still at an infant stage and keyman may not be suitable. In fact, keyman insurance is as important whether it is an established business or just a newly setup entity.
- Delay tactic or procrastination would be another reason when the management is “too busy” with daily business matters until an unforeseen event strike onto one of the key personnel.
Therefore, it is advisable to seek professional advise the moment you realize the importance of keyman insurance and the long-term sustainability of the company. Call us today to know more of what we can do to help your business continuation.