Keyman insurance helps a business recover from the loss of its valuable assets viz the persons who run it and/or own it. Individual talents are becoming critical to the success of many companies and employees are also becoming an important factor in investors' valuation of the entities. Every business has at least a few very valuable employees who contribute significantly to the running and growth of the company. It makes sense to insure against the unfortunate event of their untimely demise. This is because the company may face business/financial loss in case of sudden death of such valuable employees. It is here that Keyman insurance comes into play.
This insurance is purchased to aid the business in continuing to operate in case of the death or dismemberment of one partner. There are two plans most often used in partnership insurance. Under a cross purchase plan, each of the partners purchases life insurance on the other, with themselves listed as the beneficiary. If one partner dies, the surviving partner uses the payout of the life insurance to purchase the deceased partner's interest in the company. This type of plan works best for a company with only two partners, while an entity plan works better for a team with multiple partners.
Under an entity plan, the partnership purchases the life insurance policies on each partner, and is the beneficiary on each policy. Should one partner die, the partnership uses the insurance payout to buy the deceased person's interest.