Key Person Insurance
Key Person Insurance advice from ASC Financial Solutions – Milton Keynes, Buckinghamshire
Key person insurance, also formerly called key man insurance, is an important form of business insurance. There is no legal definition for “key person 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 on 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.
Key Person Insurance can provide several benefits, which include:
- Paying the costs of a temporary replacement
- Meeting the costs of recruiting a permanent replacement
- Covering the cost of death or incapacity of a key member of staff
The full scope of cover will depend on the type of policy purchased but companies ignore the risks of losing key staff at their peril.
Who can be a Key Person?
A key person can be anyone directly associated with the business whose loss can cause financial strain to the business. For example, the person could be a director of the company, a partner, a key sales person, key project manager, or someone with specific skills or knowledge which is especially valuable to the company.
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