What does the key man life insurance policy cover?

As the name suggests, this kind of insurance covers a "key" person working in a business or a company. The key man life insurance policy is also called a business life insurance policy.

This is coverage bought by an employer or a company for persons who are instrumental in the continued success of the business. The loss of an important member of the business team can spell financial disaster for the business. It can cover the business's owner,

When a key employee dies, the company will also be faced with financial loss. This in because of:

• The goodwill with big clients that the key man already has and which the company has now lost
• The knowledge and experience the key employee has accumulated throughout the years.
• The need to find and train a replacement
• The need to hire consultants or someone to temporarily hold the position while the replacement is hired and trained
• Bills and creditors that have to be dealt with and paid
• The option of being able to buy out the shares of the deceased. This may be necessary when the deceased heirs have no interest in working with the company, who don't have the skills to do the job or who can't work with the existing members of the business team
• The need to supplement the income of the family of the deceased, as part of the employee benefits package, or, if it is a family-owned business, because the family has also lost its breadwinner.

Mind you, key man life insurance is not just for the upper ranks of the company. You can also use it to cover those whose tasks and responsibilities are critical to your business - that is, the people whose absence will mean that the business will not survive.

When buying a key man life insurance policy, you should also consider including disability cover in the contract. This means that when the insured key man becomes disabled, the insurance will pay to compensate (up to specified limits) for the financial loss your business will experience.

Premiums for this kind of insurance are based not just on the age and health condition of the person but also his salary.

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