Key Person Insurance

Assurance that supplements a business if it’s key employee dies or becomes disabled.

A business may have an employee (key person) whose services and knowledge are instrumental in contributing to the profits of the business. If the employee were to die or become disabled the business could suffer financially without his knowledge and skill. In case something should happen to this key person a life policy is taken out by the employer on the life of the employee. The life assurance proceeds can compensate the employer for the loss of the key person in that it keeps the business operating by:

  • Covering loss in the readjustment period
  • Paying the additional expenses of finding, employing and training a new employee
  • Maintaining the profit of the business

Example
Charles the top sales person has a vital role in the production of income for the business. Should Charles die or become disabled he would need to be replaced by someone of equal knowledge and skills.

The business effects a policy on Charles’ life so that in the event of something happening to Charles, proceeds of the policy will be used by the company to cover the costs of training someone, operating the business etc. until a suitable person is found .