What is Keyman Insurance?

What is Keyman Insurance?

August 09, 2021

James owns a small financial firm with 15 employees and about 200 clients. Shining star Rebecca handles 20% of those 200 clients, which is about 40 clients. Other employees average about 10-15 clients each. Rebecca is a huge and long-term asset to the firm, and everyone knows it. One rainy Saturday afternoon, Rebecca was on her way to the grocery store when her car was struck by on-coming traffic. Rebecca did not survive the head-on collision. Besides losing a close friend to many employees, the firm also had to pick up Rebecca’s clients. All the employees did what they could to help Rebecca’s clients, but no one could compare to her excellent skills.

With 20% of the revenue at stake, the firm started to go downhill quickly. James was at a loss of what to do, he had just lost a close friend, best employee, and now may be losing his business. This was something he never saw coming. James had prepared for every scenario from being hacked to the office building burning to the ground. He had never thought about what would happen if his shining star employee suddenly passed away. Two months after Rebecca passed, the firm's clientele list dropped almost directly in half, to 103 clients. With the loss of so many clients 4 employees had to be let go, 7 employees' salary decreased causing 5 of them to leave the firm, this left 5 employees. It seemed inevitable that the firm would have to close its doors. A total of 3 months after Rebecca’s sudden passing, James and the few remaining employees decided to permanently shut down the firm.

After the tragic loss of Rebecca and his business, James decided he wanted to figure out what he should have done differently to have saved his company. After countless research, he came across Keyman insurance, if he would have learned of this sooner, he may still have his firm.

What is it?

Keyman insurance is life insurance for a small business or organization that is purchased to alleviate the financial strain felt after the death of an owner, partner, or top employee within a company. This insurance is given to the business or organization itself rather than an individual. This is where Keyman is different from personal life insurance. These funds help keep the business up and running. It can also help ease the selling or closing of the business, if necessary.

Who should have it?

There is no rulebook to who should be insured. That being said, it isn’t hard to know who the biggest contributor is to the business and whose work would be most notably missed. If the organization has partners and one partner or owner passes it may be difficult to replace those skills. This may lead to an instantaneous decline of sales and profit. Keyman insurance does not limit to just owners or executors of the business. There may be a shining star amongst the average employees, and without them could remove a large portion of revenue to the business. This average employee could be the keyman insured, rather than an owner or executor of the business.

How will Keyman Insurance help?

Keyman insurance will help take away the hardships of having to pick up lost profit while grieving the loss of an essential worker in your business. There are different ways the life insurance policy can be used. Stakeholders can use this to fill in gaps where revenue has experienced a large decrease. Another way it can be used is if the person in charge decides to sell the company, the policy can be used to pay off debts. Keyman Insurance is for the family, they can decide on a succession plan and use the funds to continue operation within the business until a spouse or child of the deceased can properly fill the position.

Would your business benefit? 

Larger corporations have plans in place that prepare the company to be able to function and continue growth even if the most valuable employee was to leave. But smaller businesses or organizations cannot withstand losing a vital asset to their business. If you decide on Keyman Insurance your company will have plenty of time to make a decision to continue or end business with stable funds. Keyman insurance acts as a safety net after a tragic loss for the company. Give us a call at 410-252-1117, here at Lentz Insurance Agency we always do our best to give our clients the best rates and coverage.