Key people within a company should be insured, especially during health crises such as the COVID-19 pandemic, according to Victoria Hilado, an estate preparation, planning, and settlement lawyer.
Key person (or keyman) insurance is a life insurance policy bought by a company on the life of an employee who is essential to its business. Typically, those who are insured include the president and C-suite officers, but it may vary across industries.
A pharmaceutical company, for instance, may consider its chief chemist as a key person; a fashion company, its head designer.
Key persons are worth years of mentoring, training, and other kinds of expenses shouldered by the company. If a key person passes away, the loss of their expertise disrupts the company’s functions and consequently, their revenue.
“In countries like the United Kingdom, apprenticeships are paid and fought for, and involve years and years of training and continued expense. This emphasizes the importance of key people in an industry who have acquired experience through years of hard and expensive training,” said Ms. Hilado during an online event organized by Manulife China Bank.
By purchasing key person insurance policies, companies will have the funds to help sustain operations while looking for a replacement. In extreme cases, proceeds can help pay for the expenses incurred during winding down, or closing, the business, such as paying off loans and providing severance to employees.
“It can, at the very least, mitigate the effects of loss by providing funds to the company to assist in finding a replacement, paying the cost for the search for the replacement, training the replacement, and even give financial benefits to the family of the employee who has passed away,” said Ms. Hilado. — Mariel Alison L. Aguinaldo