In simple terms, keyman insurance takes care of the cost of replacing the salary of a key team member if they can’t do their job due to death, illness or injury. The policy could cover their salary costs if they are ill and therefore unable to work, or cover the cost of a temporary member of staff. The insurance will also cover paying a lump sum to the family in event of death.
Why do you need keyman insurance?
If a stakeholder in a business develops an illness or dies whilst they are in employment, it can have a major financial impact on the business. Your business could fail to recover, with profit falling and increased workloads for other employees. Lack of insurance would deem your company vulnerable and potentially wide open to downfall. Keyman insurance is a must for any savvy business.
How does keyman insurance work?
Keyman insurance pays out a tax-free round figure to the business when a key person dies during the length of the policy. The money can be used to help replace lost funds, or chip into to the costs of recruiting a replacement employee.
The policy will also pay a lump sum to the business in the event that the key person is diagnosed with a critical or terminal illness, within the term of the policy. If the employee is diagnosed with an illness within the last 12 months of the policy term, they will typically not be covered.
Keyman insurance policies can be taken out as a life insurance only policies, or with critical illness cover included. To give you an idea, policies are taken out over a set period, which is usually between 5 and 10 years.