Who Needs Key Person Insurance or Keyman Insurance?
Whilst most companies need some type of insurance, every company should have keyman insurance, also known as keyperson Insurance.
For large organisations it is designed to assist in overcoming the loss of a key person. When a company loses a key person often profitability can be affected, and therefore insurance helps cover this loss.
For smaller companies with partners, it is designed to protect each partner. Having insurance permits this to be easily facilitated with correct buy-sell agreements in place.
It is common for larger companies to identify several people in different roles and with varying ownership capacities, to insure several different key members within their organisation.
Keyperson insurance specifically refers to the way a life insurance, total and permanent disability (TPD) or trauma insurance ownership is structured. The basic definitions and benefits provided are the same as policies owned by the individual, with the key difference being the ownership structure and the purpose the insurance is to be used for.
A keyperson insurance policy is owned by an organisation to insure a key member of their business/company.
In the event that their insured keyperson in the organisation suffers a critical illness, is permanently disabled or dies, the policy will provide a lump sum benefit, often tax free.
Both small and large companies should consider keyperson insurance to protect their business interests.