Key Man Insurance Cover: Why This Policy Could Save Your Small Business

Key man insurance is often overlooked by small business owners, however, its importance cannot be underestimated. Key man insurance protects a business against the financial losses that come as a result of the loss of a key employee either through prolonged illness or death. While the insurance cannot replace a key member of staff, it can help to buy time in order to recruit new staff. Key man insurance helps provide business continuity in times of emergency.

An employer will take out life and health insurance policies on any employee that is essential to the organisations day-to-day running. The person could be considered as having a special skill or intimate knowledge of the company or be considered as “uniquely valuable” to the business.

Keyman insurance falls into four main categories. These are:

1. Key people – pays money when your key personnel are unable to work or to train/recruit a replacement

2. Protect profits – cover to protect profits (an example would be if your top salesman dies in a car crash)

3. Protect shareholders and/or partners – cover to protect shareholders or partnership interests, and

4. Personal loan guarantees – cover for anyone involved in guaranteeing businesses loans or banking facilities

A business will have to decide on who actually is a key person within the organisation. Following this, a company will then need to understand the value of that particular person to the company. This is something that will be decided upon with your insurance provider.

There is a key difference between keyman insurance and life insurance or critical illness insurance and other policies like employers liability insurance and professional indemnity insurance. Life insurance and critical illness insurance are both personal insurance policies, while key man insurance is corporate policy where a company pays the premiums and in turn receives the financial compensation should the policy pay out.

Key Man insurance is particularly important for small businesses with fewer than 10 employees. Every business should have a plan for how to cope without a key employee. Keyman insurance could be one of the most important business decisions you make.