Keyman Insurance

Keyman Insurance: A brief guide to keyman insurance cover

Throughout history since the first person to conceive of the idea of insurance (in theory about 3,000 years ago) people have been trying to cover different things for different reasons.

Keyman policy insurance is no different. When it was realised that the death or incapacity of certain key people within a business could cause that business to fail, businesses looked for ways to mitigate that risk.

Let’s start with the basics – what is keyman policy insurance?

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What is Keyman Insurance?

Risk management, essentially.

When a company can identify individuals without whom the business would cease to function, or otherwise be vitally harmed by their absence, a keyman insurance policy can be taken out.

Take care to get country specific advice for keyman insurance (HMRC for example will focus on UK based policy allowances, while AIA keyman insurance is more relevant for Kiwis) as many things are different globally.

Who counts as a ‘Key Person’ in a keyman insurance policy?

Any person within your business whose death or permanent incapacity would damage the company, cause profit loss, or even bankruptcy. A very specific example might be a remote warehouse where there are very few licenced crane drivers, so should your crane driver pass away your entire business would have to stop until you could find or train a replacement. A more general one might be your CEO or chief board member.

What does keyman insurance cover?

Every keyman insurance policy is different, so make sure that your broker knows your precise needs before settling on one of the provided keyman life insurance quotes.

In short, most costs associated with rectifying the damage to the company might be covered by a keyman insurance policy.

However, there are a few things commonly included in keyman insurance cover. The cost to replace the employee – if the key person had specialist training, for example – or to cover profit losses during downtime.

The best keyman insurance policy for you will be the one that provides the most protection and is most applicable to your needs – essentially which keyman insurance premium will get you the best value for your dollar.

What does ‘keyman’ mean in insurance? Why is it still called a ‘Keyman’ insurance policy?

‘Keyman’ is a common colloquial contraction of the term “Key Man”, and when it comes to keyman insurance it refers to someone within a business who is absolutely vital to its function as a successful business. Since it has been the case for a while now that gender doesn’t prohibit you from owning a business, or indeed simply being vital to one in an official capacity, it is often referred to as a Key Person Policy. However, due to consistent use it continues to be referred to as Keyman Insurance.

How is Keyman Insurance Different to Business or Life Insurance?

While it is sometimes called keyman life insurance, quotes provided should make the differences clear. Keyman insurance directly covers the costs of replacing or retraining employees to cover the vacuum left by key person passing away. It is paid to the company where as life insurance is paid to the family of the policy holder. Business insurance, while benefits are paid to the employer or business owner, often covers broader and less specific things like stock cover, fire, and theft.