Private Client Services by Mercer
Key Person insurance refers to life insurance on a key person in the business. It is a policy taken out by a business to inject liquidity for financial losses that will be incurred due to demise of a key person.
Key persons include, but not limited to; founders / co-founders, managing directors, company directors, sales directors, IT specialist, head of product development et al. Key persons are those individuals whose skills, knowledge, experience or leadership are important to a business’ continued financial success. Should something happen to one of these individuals, it is likely that the loss will have a detrimental impact on the profitability of the business and will cause financial strain.
Valuing key employees is important, but it is usually also quite difficult. While the amount of coverage should address the specific needs of the company, the insurance company’s primary goal in valuing a key person for life insurance is to determine the realistic loss associated with the death of such employee.
There are various valuation methods to determine the amount of key person insurance:
Company pays the premium and owns the policy.
Should the key person leave, company may choose to:
Should the key person retire, company may choose to:
In the event of an untimely demise, company receives the Sum Assured. The company may choose to give part of the proceeds to the family of the deceased key person.
*For selected insurer only