A Keyman insurance policy covers the loss of a a key person who makes a significant contribution to the success of a company.
What if the most important employee is suddenly no longer available? Keyman insurance is a life insurance policy that protects a company or institution against the consequences of the death of a so-called key person.
Key person insurance is a standard life insurance policy that is used for business succession or business protection purposes. Companies often employ or are headed by a key person who is responsible for the majority of profits or has a unique, difficult to replace skill set (e.g. intellectual property) that is key for the success of an organisation. A company may buy a Keyman insurance policy on the life or health of any employee whose knowledge, work, or overall contribution is considered exceptionally valuable to the company. The employer does this to cover the costs (such as hiring temporary help or recruiting a successor) and losses (such as a temporary loss of profits from business until successors are trained) which the employer is likely to suffer in the event of the loss of a key person.
It is often required of investors when they find that the success of a company depends to a large extent on a single key person.