Key Man Assurance

Key Man Assurance is simply life insurance on the Key Employee in a business. In a small business, this is usually the Owner, the Founders or perhaps a Key Employee. These are the people who are crucial to a business - the ones whose absence would sink the Company.

Here's how Key Man Assurance works: a Company purchases a Life Insurance Policy on its Key Employee(s), pays the premiums and is the Beneficiary of the Policy. If that person unexpectedly dies, the Company receives the insurance payoff. The reason this coverage is important is because the death of a Key Man in a small Company can cause the immediate death of that Company. The purpose of Key Man Assurance is to help the Company survive the blow of losing the person who makes the business work.  The Policy will be for a short-term of 1 – 3 years to help the Company recover from the loss.

The Company can use the insurance proceeds for expenses until it finds a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to Employees and close the business down in an orderly manner. In a tragic situation, Key Man Assurance gives the Company options other than liquidation.

Businesses are used to insuring their equipment but don’t think about insuring their valuable human resources until it’s too late.