Key Man Life Insurance

Insuring your business against the loss of senior executives and directors

A company or partnership would typically take out key man insurance, sometimes known as shareholder life insurance, to cover against the financial loss to the business of a seemingly irreplaceable director, manager or shareholder. For many small or medium sized businesses, the potential death or disability of a senior partner, executive director or shareholder would cause the business significant problems, not least the possibility that the family or estate of the key man would effectively 'join the board' of the company unless the surviving directors were in a financial position to buy out the deceased's share of the business. This is where key man life insurance comes in.

"We calculated that our business was worth about £250,000. With just two partners, each would need to take out a key man life insurance policy for £125,000, thereby insuring against the loss of a partner's 50% share of the business"

In order to calculate the life cover needed for a key man insurance policy, a business would need to judge the value to the company of each individual's death or disability. An alternative approach, perhaps under the terms of business partnership protection insurance, is for a lump sum payment to be made to the surviving partner, enabling him/her to buy the deceased's family or estate out of their bequeathed share of the business. For these reasons, it is important to take appropriate professional advice when considering key man insurance.

You may also be interested to see other QuoteRack categories such as business liability insurance and vacant business premises property insurance.