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Keyman Insurance

If you run a business, you have probably considered insuring your building, motor vehicles, stock and other physical assets. But have you considered the losses you might incur if you lose a key employee? Keyman Insurance protects you from adverse impact on your business if one or more of your key employees or other persons critical to your company can no longer work as a result of injury, prolonged illness or death.

How does Keyman Insurance work?

In the case that there is a loss of a key employee, Keyman Insurance will provide a fixed monetary sum, as stated in the insurance policy. A Keyman Insurance policy defines four categories of loss that can be used as the basis of a compensation claim:

Loss of key staff for an extended period: Keyman Insurance can provide monetary compensation covering the hiring of temporary staff and, if needed, recruitment and training of new staff.

Profit protection: This is compensation you receive to replace income lost due to the absence of a key person. This might be if they were involved in a project that had to be cancelled, or if their absence results in lost sales or income.

Financing personnel: Keyman Insurance can also cover instances where there has been the loss of a person involved in business loans or banking facility guaranteeing.

Partnership interests and shareholders: These may also be covered by Keyman Insurance, which in such instances will allow other current partners or shareholders to purchase the affected person’s holdings.

How are Keyman Insurance quotes calculated?

In larger companies, it is common to insure several people in key roles with varied ownership interests.

For partnerships Keyman Insurance can be used to cover the contribution of each partner, with the necessary payout relatively easy to calculate if there is a well-defined Buy-Sell Agreement in place.

There can be many factors to consider when calculating how much Keyman Insurance you need, with the number of variables involved increasing with company size and complexity. Wealth Smart advisers are able to access some very competitive Keyman Insurance quotes from leading providers. For example, it can be possible to insure a male in his mid 30’s for as little as $1000 a year.

When do I need Keyman Insurance?

Keyman Insurance is valuable to almost any business with employees, especially those with people in important positions whose sudden departure would have a significant impact on your income, sales and/or profits.

Recruiting and training replacement employees can take a long time and cost a lot of money. Keyman Insurance can cover these costs, protecting your business in case of the death or prolonged absence of a key employee.

A Keyman Insurance example

One of the reasons for taking out Keyman Insurance is to ensure your business doesn’t suffer as the result of the death of a principal or senior executive. Another important reason is to protect the deceased estate’s interests.

Most professional businesses and partnerships are highly geared, with personal assets of the principals put up as collateral security.

A valuation of the business following the death or disablement of a key partner will likely result in equity devaluation, resulting from disrupted cash flow and reduced credit facilities. The remaining partners may be reluctant to buy out shares even at their reduced value, often resulting in an outside offer to buy the deceased or absent person’s shares at a less than attractive price.

Keyman Insurance will provide continued cash flow so that such a situation does not occur, with the coverage often very good value. A 35 year old male, for instance, may be insured for $1 million for under $1000 per year.

Obtaining Keyman Insurance quotes

Keyman Insurance can be the best and most cost-effective way to protect your business or partnership against unexpected events that affect your key people and reduce your business’ profitability.

Choosing a Keyman Insurance broker

Whether you’re running a professional business or a partnership, Keyman Insurance can be a cost-effective way to protect yourself against the sudden loss of your most valuable people and can form an important part of your company’s growth strategy.

Wealth Smart advises professionals and businesses on a range of wealth management tools from income protection to superannuation, and can bring together the right level of industry knowledge and business insight to find the Keyman Insurance policy that works for your business.

Page last updated: January 16, 2015