“The show must go on,” is a phrase that goes beyond the showbiz industry. No matter what happens, the business should continue.
However, there are many firms that solely depend on an individual or a few individuals. His or her absence or death could threaten the very existence of the business.
Such an individual, considered the key man, may be the owner, founder or a key employee of a business. It is not very common for large businesses to depend on the individual for its survival. The key man factor comes even more into play with regard to an SME.
By insuring the life of the key man, businesses can be rest assured that the person’s unfortunate death or absence due to incapacities does not imperil the very survival of the company. Key Man Insurance is taken by companies to compensate for its losses caused due to the absence of the key person or even to escape the immediate closure of the company.
How does the insurance work? The company purchases a life insurance policy on the key person by paying the premium and becomes the beneficiary of the policy. In the eventuality of the key person’s death or incapacity to perform his work, the company receives the insured amount. The insurance amount received comes in handy to meet all expenses until the company can find a replacement, pay off debts, distribute money to investors, pay severance to employees and or even close the business down in an orderly manner. The payout can also be used at the company’s discretion to buy out the deceased individual’s share, if any.