From Wikipedia, the free encyclopedia:
Key person insurance, also commonly called keyman insurance and key man insurance, is an important form of business insurance. There is no legal definition for "key person 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 an important member of the business. To put it simply, Keyman Insurance is a standard life insurance, TPD insurance or trauma insurance policy that is used for business succession or business protection purposes. The policy's term does not extend beyond the period of the key person’s usefulness to the business. Keyman Insurance policies are usually owned by the business and the aim is to compensate the business for losses incurred with the loss of a key income generator and facilitate business continuity. Key person 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 person 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.
As keyperson insurance is more of a type of insurance policy than an actual policy, the term is used somewhat loosely and may include other insurance used for other business specific purposes, including:
Key man life insurance definition
Definition: Key person insurance coverage plan on a key worker, partner or proprietor on whom the ongoing achievements of the organization sets on. The insurance pollicy is the proprietor of the business.
Key individual insurance coverage is simply life or impairment insurance coverage on the key individual or the key man in a organization. In an organization, this is usually the proprietor, the creators or perhaps a key worker or three. These will always be the individuals who are essential to a company's achievements --the ones whose demise would cause failures for the organization. You really should consider key person insurance coverage on these essential individuals.
Key person insurance coverage works as follows: A organization buys a insurance coverage plan on its key workers, will pay the rates and is the owner of the plan. If that key individual suddenly passes away, or gets impaired, the organization gets the plan payment.
The purpose this coverage is important because the death or impairment of a key individual in your organization can have the effect of the immediate bankruptcy of tyour organization. The purpose for key individual insurance coverage is to help the organization endure the financial shock of losing the individual who makes the organization work, and is guaranteeing the current profit.
The organization can use the payout for any expenses. It can find a replacement for the individual in question, or, if necessary, pay off debts, pay severance to workers and close the organization down.
In this terrible situation, key person insurance coverage gives the organization some options other than immediate bankruptcy.
How do you determine who needs this key personinsurance? Look at your organization and think about who is essential in the short and lngterm. In many companies, it's the proprietor who maintains the organization well being - he may keep the books, manage the workers, handle the key customers and so on. If that individual is gone, the organization pretty much is over.
How much key individual insurance coverage do you need? That depends on your organization, but in general, you should get as much as you can afford. Ask for quotations on R1,000,000, R2,500,000, R10,000,000 and compare the costs of each. Then think of how much cash your organization would need to endure until it could substitute the key individual, come up to speed and get the organization back on its feet. Buy a plan that fits into your budget and will address your short-term and longer-term cash needs in case of disaster.
George van Zyl
FSP number: 12430
Nicolson Street 97
012 346 5664
0877 501 838