Be smart and opt for Key Man insurance


Who is a key person?


Every organization has within them certain personals that are indispensable to the profitable running of that business. It is common knowledge that sometimes they can become the face of the company where the stake holders and the creditors both owe the creditworthiness of the company to that particular key person.Now, in the event of the untimely demise or an unfortunate event that may cause permanent physical disability to that person, it may bring down the confidence levels of the shareholders and the outside credit institutions. In light of such facts and unfolding events, the companies prefer to buy an insurance policy that covers the life of the key men in the organizations.The role of such an insurance policy is to cover the company to get back on its two feet in the wake of the unfortunate events mentioned already.


What are the benefits of the KeyMan insurance to the company?


The KeyMan insurance protects the company’s financial standing in the event of the death of the key person of the company who can be the face of the company. The news of the death itself can send the value of the shares into frenzy and therefore it is important that the key people are adequately covered.Therefore, the insurance policy can assure the shareholders who may not off load the shares in urgency.The company may consider the premiums paid on the policy as investment of the company just like how it invests in stocks and shares.In case the company has borrowed heavily from outside credit agencies, then at the time of untimely death of the key person, the policy amount can help in assuring the credit institutions and financiers that all is well with the company’s affairs.


With the unfortunate death of the key person, if the company is put on the block then the insurance policy on the key person can help the company fetch a market rate and in some cases at a premium rate also. It is also seen that when a key person policy is not bought, the company has to be sold in distressed rates. With a policy like this it can most definitely be avoided.


What is the eligibility for the KeyMan insurance?


The key person should not hold more that 51% of the company’s total shares;The total shares held by the key person and his extended family should not exceed the 70 percent of the company’s shares;There has to be an honest proof that the service of such key person is indeed very critical to the successful running of the business.The onus of proving the role of the key person lies on the company who is buying the policy for such a person.


What can be the maximum sum that can be insured :


The insurance policy amount should not exceed more than ten times the annual remunerative package that the key person draws as salary from the company or the firm;The policy amount should not exceed three time the gross profit that the company has clocked in the past three accounting years;The amount of the policy should not exceed five times the average net profit that the company has made in the past three years.


Can all companies purchase a key man policy?


Even though the idea is a little contradictory, a KeyMan Insurance cannot be offered to a loss making company whose annual turnover is declining steadily for the past three years. The company has to prove beyond all reasonable doubts that the company is one that is rising in financial net profit and that any eventuality to its key person can subject it to severe loss and disability.


What happens when the employee quits the business?


In the event that the employee quits the business, the policy is transferable to his replacement. There can be no personal claim by the employee and his KeyMan policy as the owner and the beneficiary of the policy is the business house itself and it is to be used in the eventuality of death or disability of that key person to from doing his duties in the organization.