Every business that has valuable key staff should purchase a key man policy or a key person Insurance policy to cover their costs in the event of loss of some kind in particular:

Death,

Total and permanent disability

And or a Trauma event occurring.

But not all businesses think about key person insurance. Many businesses, especially smaller ones, depend quite a bit on one single employee the key man or woman without whom the business would fall to pieces. They are the ones who do the majority of the work and running of the business. But what will happen to the business if this person should get sick and be unable to work? Or maybe they could have an accident at work or even on the road and not be able to return to work.

Key man insurance is when a business takes out a Life Insurance policy on their key worker. The business pays the premiums and is the beneficiary and or owner of the policy should something happen to this employee. With key man insurance the business may not have to close down after all. There will be enough money from the Life Insurance Company to get by until a replacement can be found.

When calculating the right amount of Life Insurance cover the business needs you should consider the following:

The costs to replace the key person, i.e. recruitment costs;

Loss of profits usually one year

Loss of Key customers:

Or if it does have to close down there will be enough money from the insurance to pay off any other employees, debts and shareholders if there are any.

Key man insurance is really a Life insurance policy for the business. If you are the sole worker in a family business, then you should certainly have life insurance to take care of the family should anything happen to you. However
key person insurance is taken out on key staff to take care of the business should they be unable to do so.