Sandton Key Man Insurance
Key Person Insurance

Click here to edit subtitle


Keymaninsurance – and then why you need it for your business

Posted by deon.keyman on March 6, 2013 at 3:25 AM


One of the biggest risks in small business is the fact that a company’s operations generally revolve around one or two key people, without whom the business cannot continue. Key person insurance is simply life insurance on those key people.

As a business owner you no doubt value the contributions each of your employees make to your business. However, there are also key individuals who are critical to the continued success of your venture. Losing such a key individual would impact you on a personal as well as business level.

A key person is anyone who significantly improves the profitability and effective management of your business. He or she is someone who:

  • Has specialist, expert skills vital to success in your industry.
  • Attracts and retains competent staff members.
  • Increases the creditworthiness of the business.
  • Builds goodwill for the business.

Should one of your key people die or become disabled, the impact on your business can be devastating:

  • A slowdown in turnover
  • Decline in profitability and/or sales
  • Stricter terms from suppliers
  • Difficulty in raising finance
  • Normally, a company purchases life insurance on the key employee, pays the premiums and is the beneficiary of the policy. If that person dies unexpectedly, the company receives the insurance payout.

This payout helps to:

  • cover expenses until a replacement is found;
  • pay off debts;
  • distribute money to investors, if necessary;
  • pay severance to employees; and
  • ensure the orderly closure of the business.
  • No formula or set of rules can be applied when determining the value of a human life.

For insurance purposes, however, the amount of key person cover is usually determined using one of the following methods:

  1. Seven times the annual salary of the key person.
  2. The estimated number of years that it would take for a replacement to reach the key person’s present level of profitability, multiplied by the drop in profits as a result of the death or disability of the key person.
  3. Itemising the costs involved in replacing the key person. Such costs could involve:

  • the actual cost of replacing the key person;
  • the key person’s worth in terms of net profits;
  • the cost to the business if the key person were to die or become disabled today; and
  • the degree to which the business wishes to protect itself against the loss that would be sustained upon the loss of the key person.
  • Protection for business partners
  • Buy & sell insurance is risk insurance that business co-owners take out on one another’s lives to enable them to buy a deceased or disabled co-owner’s share in the business.

The loss of a co-owner to death or disability could impact your business in the following ways:

  • The existence of the business may be in jeopardy.
  • Credit facilities may be affected adversely.
  • Outsiders may obtain a controlling interest.
  • Remaining co-owners may be unable to afford the deceased’s interest or shares.
  • The business interest may be sold below fair market value.
  • Buy & sell insurance enables business continuity. It works as follows:

The co-owners enter into an agreement where they undertake to purchase the interest of their fellow co-owners should any of them die or become disabled.

A co-owner effects an insurance benefit on the life of another co-owner and vice-versa. Each co-owner will consequently own a benefit on the life of the other and pay the premiums under the benefit of which they are owner.

The insurance payout provides the cash to facilitate the purchase of an interest in the business, thus ensuring business continuity and the financial welfare of the deceased’s dependants.

When more than one co-owner is involved, the benefit on the life of each co-owner will be jointly owned by the other co-owners, proportionate to their interest in the business.

Categories: key man, Key person insurance

Post a Comment


Oops, you forgot something.


The words you entered did not match the given text. Please try again.

Already a member? Sign In


Reply JamesFut
9:24 AM on February 8, 2020 
herbal rolling tobacco remedies for gastro
Reply JamosNig
7:44 AM on May 31, 2021 
Fantastic forum posts, Appreciate it.
Reply JamosNig
8:16 PM on June 3, 2021 
You made your position quite clearly.!
buy an essays
writing services
how to write an effective essay
thesis writing service
how to write compare contrast essay
essays writing service
writing a scholarship essay
essay writings
essay help forum
help thesis writing
colleges that require essays for admission
paper writing services
college essay thesis
Reply JamosNig
9:30 AM on June 4, 2021 
Thanks a lot! I like this.
graphic organizers for writing an essay
online dissertation
how to write essays fast
dissertation writing
essay writing classes
paper writing services
essays writer
thesis help
cheap write my essay
my homework
purposes of writing an essay
essay writing services
writing college essays
Reply JamosNig
10:09 PM on June 4, 2021 
Amazing posts. Kudos.
what is good writing essay
homework pass
college essay rubrics
papers writing service
how can i pay someone to write my essay
help thesis writing
buy essay papers cheap
write papers
write my college essay me
essay typer
buy essays
best dissertation
best essay writing service reviews
Reply JamosNig
11:12 AM on June 5, 2021 
Nicely put, Regards.
leadership college essay
dissertation definition
cheap essays online
how to write a thesis
essay prompts for college
resume writing service
from thesis to essay writing
xyz homework
type of essay writing
help writing thesis statement
how to write an about me essay
thesis editing
write my essay service
Reply JamosNig
12:04 AM on June 6, 2021 
Whoa a lot of very good facts!
customized essay writing
writers help
history essay writing service
writing service
music college essay
writing paper
good essay writing website
do my homework
steps to write an essay
how to write literature essay
thesis writing help
online essay help
Reply JamosNig
12:18 AM on June 7, 2021 
Nicely put. Many thanks.
canadian online pharmacies legitimate by aarp
Reply JamosNig
3:26 AM on June 8, 2021 
Nicely put. Cheers.
using essay writing service
essay 123 help
colleges that dont require essays
essay writers canada
Reply JamosNig
4:23 AM on June 9, 2021 
Terrific postings. Thank you.
what is the best college essay editing service
how to write a proposal for an essay
how to write contrast essay
how to write a 500 word essay
Reply JamosNig
6:09 AM on June 10, 2021 
Seriously many of fantastic info.
how to write short essay
essay paper writing
websites to write essays
college essay writers block
Reply JamosNig
7:06 AM on June 11, 2021 
Kudos. A good amount of tips!
custom essay
write college essays
buying essays online safe
essay help live chat
Reply JamosNig
9:26 AM on June 12, 2021 
Incredible many of wonderful data!
essay writing prompts for high school
how to write an expository essay
why do you want to go to college essay
writing a persuasive essay powerpoint
Reply JamosNig
10:44 AM on June 13, 2021 
Seriously loads of helpful information.
how to write college admission essay
custom essay service
what is the best essay writing service
customized essay
Reply JamosNig
5:46 AM on June 16, 2021 
Well expressed certainly! .