Keyman insurance or Key person insurance is a type of life insurance / business insurance policy that a company or business purchases on behalf of a person working at the business – the key individual.
The business pays the monthly premiums on the policy and is therefore the beneficiary.
If the designated key person is lost to the business due to ill-health or death then the policy will pay out to cover any costs incurred to the business directly due to the loss of the key person such as replacement training costs or loss of revenue.
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What is a key person?
A key person is a an individual working in a company whose loss to the business due to death or illness would have a significant negative impact on the business’s ongoing stability.
The key person is usually someone with unique skills or experience, knowledge or business relationships that are essential to the continuity of the business.
A key person can be anyone within the business – director, employee or business owner.
What is key person insurance?
Key man insurance (or key person insurance), covers the most vital employees in a business should they die or fall seriously ill.
Key man insurance is essentially a form of life insurance policy that will protect the business from the loss of the key person through long term illness or death.
It will allow your business to continue trading in this worst case scenario and manage the significant financial impact of the sudden loss of a key employee.
What is unique about key person cover?
Key person insurance is a very specific life insurance policy, which may or may not include illness cover , which pays a lump sum on the death, or diagnosis of a specific, critical illness, of the insured employee.
This lump sum may be used to protect against the financial loss incurred to the business on the death of the employee, to repay loans guaranteed by the employee, to repay finance provided by the employee to their estate, or to provide the resources to recruit or train a replacement for the deceased employee.
This lump sum will allow your business to maintain day to day operations and financial stability until the business can replace the insured person.
What factors impact keyman insurance premium prices?
Factors that may influence the coverage amount and premiums include the key person’s role, responsibilities and expertise.
If a key person dies the potential financial impact on the business is an important consideration in calculating the cost of the policy.
Does key person insurance cover critical illness?
Key person cover is usually a term life protection policy which may include critical illness cover. It can cover the term of any loans guaranteed or provided by the key person in the event of their needing to be immediately repaid.
Monthly premiums usually stay the same through the term of the policy.
Who provides key person insurance in Ireland?
What types of business need key person insurance?
A keyman insurance policy can protect businesses of all sizes but certain types of business are particularly suited to this type of policy.
Small Businesses
Small business often have a handful of employees who are key to the running of the business. This could be a top sales performer, the business owner or the product expert. Losing one of these key people to terminal illness or mental health issues could have a significant adverse impact on the success of the business.
The key man insurance policy will help provide a small business protection against lost revenue caused by the loss of key personnel.
Professional Service Firms
The financial success of professional services firms such as law firms, consulting firms, accountants, medical practice firms depend heavily on the expertise and knowledge of a small number of experts.
If a partner or consulting practice lead within such a firm were to be lost to the business the firm could suffer a significant profit loss or loss of existing clients.
In this scenario a key person protection policy could help with the cost of replacing the lost key person and any other associated business expense.
Startups
Startups are frequently build around the vision and expertise of one or two individuals. If those individuals are lost to the business in the early stages this can lead in some cases to the business ceasing to trade.
A key person insurance policy can provide protection and mitigate against the risk of losing such a key employee in this crucial stage.
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How much does keyman insurance cost?
The price of the key person insurance premiums varies greatly depending on the circumstances of the cover.
The size of the business, the amount of turnover, the number of key persons to be insured, the sum assured, the estimated costs to the business to replace they key person and whether critical illness cover is part of the policy will all determine how much the monthly premium costs.
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