In a business organization, key man refers to a person who is of great relevance or whose presence is crucial for the successful functioning of an organization. It is not necessary that key man should be the CEO or COO of the company; he could be any person who possesses the knowledge, experience, and expertise to play a decisive role in any of the important business areas. Such a man could be an accounts manager, HR manager, sales manager, marketing manager, project manager, and the like.
Key man, as you would have got an idea, is very important for a business to continue in a stable manner. Suppose an organization ceased to get its key man’s contribution due to death, chronic illness, or permanent disability of such a man, what would be the effect on that organization? The organization would suffer losses, its business activities would be adversely affected, and it would even come to a standstill. So, is there any way to prevent such a situation? The good news is that there is, and it is called key man insurance.
Key man insurance, as the name suggests, is the insurance of the key man of an organization. It is also called key person insurance or key employee insurance. Nowadays, many financial advisor services firms provide professional advice on Key Man Insurance policies. We have discussed above that the presence of a key man is of great importance in a business organization and his/her absence could prove detrimental for an organization. In such a scenario, key man insurance provides a cover for the monetary loss that an organization would suffer in the absence of its key man, or provides financial support for the expenses (for example, salaries of employees, returns to investors, operational costs, etc.) that an organization has to met in times of financial difficulties.
Key man insurance is important for your business due to the following reasons:
�It covers the monetary risk that arises when a key man leaves an organization.
�It provides money to an organization to meet its important expenses like wages of employees, payment to shareholders, mortgage amount, etc., even in times of financial difficulty that occurs due to its key man being not there.
�The organization has also to look for a replacement of the key person lost; this could prove very expensive depending upon the area of business the key person was handling. Key person insurance has the provision of providing fund for such an expense as well.
�Key person insurance is even more helpful to small organizations because loss of a key employee, in most cases, would mean death of the organization as well. Key person insurance provides a chance to such organizations to recover.