Key Man Insurance

Key Man, also commonly called key person or keyman coverage, is an important form of business insurance.
Generally key person insurance would come in the form of Term Life insurance or Disability insurance and would be owned and paid for by the company.

Here are some important things to note:

• There is no legal definition for "key man 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 the member of the business specified on the policy.
• The policy's term does not extend beyond the period of the key person's usefulness to the business.
• The aim is to compensate the business for losses and facilitate business continuity.
• Key person insurance does not indemnify the actual losses incurred but compensates with a fixed monetary sum as specified in 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.