Key person insurance

What if one or more of your key staff members – responsible for continuity – or your business partner becomes disabled, or worse, dies? How will your business, your reputation and your income be affected? It's important to take a close look at the risks your business faces so that you can take responsible action.

Providing proper care for your employees contributes to the stability and desirability of your business – part of what it needs to be a success in a tough market place. This places a heavy financial burden on your business, not to mention the minefield of legal implications you as an employer face – a responsibility no one should take lightly.

Key Person Insurance is one way of covering your risk. Let's break it down.


Any business consists of the following three components:

  • Capital – fixed and liquid assets.
  • Manpower – employees.
  • Management – owner and employees in management positions.

Profits gained are directly dependent on the relationship between the above components. If any aspect does not make an optimal contribution, profits and the continued existence of the business will be threatened.

Where the employer insures an employee's life to protect himself from losses resulting from the illness, disability, or death of such an employee, the insurance is known as key person insurance.

The solution

The employer takes out a policy on the life of the relevant key person, which is usually a term assurance policy. In the event of the death or disablement of the employee, the proceeds are paid out to the employer.

This money may be used to compensate the employer for loss of profits as a result of the death or disablement of the employee and also for recruiting and training a suitable substitute.

The benefits of Key Person Protection

Key person protection ensures that:

  • Should there be any loss of business profits, the proceeds of the policy will compensate for this.
  • Cash is available to finalise uncompleted projects.
  • A new employee may be recruited and trained.
  • The other employees are not affected because they perceive that the business is equipped and has a contingency plan to cater for setbacks.
  • The credit standing of the business is not affected.

Don't be caught unprepared should something happen to a key employee. Assess your risk and then take the appropriate action.


The content in this article was provided by Sanlam – a diversified financial services group, headquartered in South Africa, operating across a number of selected global markets.

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