Keyman

Definition

Keyman insurance is a term used to describe insurance taken by an organisaiton (businesses and corporates) on the life or lives of the keyman with a view to compensating the organisation for the loss of the services of the keyman.

The need for Keyman Insurance 

When a keyman in an organisation dies or is disabled perhaps due to an accident or illness, the organisaiton loses his services. This may cause the following disruption and cost to the organisation:

a) The competitors take the opportunity to overtake and perhaps drive the
    organisaiton out of business.

b) The organisation has to spend considerable sums of money to employ a 
    substitute in a hurry.

c) The organisation may have to face a loss of conficence on the part of
    consumers, suppliers and creditors and possibly withdrawal of their support, causing
    further losses to business. Often, the loss of a keyman   leads to the death of a company
    which is not prepared for it.


How to prepare for death or disability of keyman

One way is to groom a successor. Encouraging keyman to keep fit and regular medical checks for this will also reduce the risks and give early warning.  However, the risks cannot be eliminated totally.

To provide for the eventuality of loss of a keyman or deveral keymen, an insurance policy can be taken by the organisation on the life or lives of the keyman. The insurance policy provides the money required to set the business in order.

Several plans are available:

1) Personal Accident Policy : To provide for accidental death and disablement
2) Term life Assurance : To provide for death and disablement for a specified period of time
3) Whole Life Assurance : To provide the death and disablement for the whole life of the keyman.
4) Combination Plan of (1), (2) and (3).


Keyman and Golden Handshake

The Keyman insurance can be structured in such a way that it can also become a Golden Handshake for the keyman when he retires.  Life insurance such as Whole Life, which has a cash value, can be assigned back to the keyman when he retires.

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