Most business leaders know and believe that people are their most prized assets. But not everyone is equally important to the business. Some employees can be easily replaced in no time, while some are extremely critical to the business and hence, are incredibly hard to replace.

Such people might be few in number, but their importance in ensuring the success of the business makes them indispensable. Hence, to mitigate the financial risks associated with losing such key personnel due to death/disability/critical illness, businesses can opt for Key Man Insurance.

In this blog, we share with you a 360-degree overview of Key Man Insurance, along with the top 4 reasons why businesses must avail of this uniquely valuable Business Insurance In Dubai.

Who is a Key Man?

A Key Man is someone who contributes substantially to the commercial success, financial stability, and overall continuity of a business.

Examples of a Key Man in a business include:

• people from the top brass (like the Director, CEO, CFO, or COO),
• an employee with irreplaceable or unique skills,
• an employee who is critical for driving sales and profits, etc.

What is Key Man Insurance?

Key Man Insurance is one of the top business insurance in Dubai that safeguards businesses against the risk of financial losses that arise due to the death or incapacitation of a Key Man. It is also known as Key Person Insurance.

Who is the Beneficiary of Key Man Insurance?

The beneficiary of Key Man Insurance is the employer and not the employee. The employer, i.e. the business, buys the Key Man Insurance and receives pre-defined financial benefits in the event of death, disability, or critical illness of the Key Man while the policy is active.

When Should You Consider Buying Key Man Insurance in Dubai?

If your answer to any of the following questions is ‘yes’, then it is highly recommended that you buy Key Man Insurance:

• Does your business continuity depend on one or more key individuals?
• Will you suffer significant losses in your sales/profits/stock prices if any key individual dies, or becomes incapacitated?
• Are there any key individuals who serve as guarantors for your business loans?
• Do you own a family business/partnership business the success of which rests on a few core individuals?
• Is your business dependent on the unique skills of an employee who cannot be easily replaced?
• Is the majority of your clients, revenues, and profits being generated by a key employee whose absence would cause significant losses?

What are the Different Types of Key Man Insurance in Dubai?

Key Man Insurance comes in two forms – Term and Whole Life/Universal Life. Term Key Man Insurance is usually cheaper but expires on the completion of a predefined period of time during which the policy is valid. On the other hand, Whole Life Key Man Insurance remains valid as long as the Key Person is alive.

Note that disability coverage usually comes as a policy rider in both cases.

What is Covered Under Key Man Insurance?

The following are examples of financial losses that might kick in due to the death/disability/critical illness of the Key Man, and can be protected under Key Man Insurance:

• Loss of revenues and profits
• Fall in share prices
• Cost of replacing the Key Man
• Loss of reputation and credibility
• Loss of customers/business partners

How is the Coverage Amount Calculated?

The coverage amount is usually arrived at by multiplying the annual salary package or the estimated monetary value of the Key Man’s total contribution with an appropriate multiplier.

What Are the Tax Implications of Key Man Insurance in Dubai?

The premium paid by the business to the insurer on Key Man Insurance is usually considered to be a business expense, and hence, can help reduce tax liability. Furthermore, the benefit received by the employer upon the death/disability/critical illness of the Key Man is usually tax-free, barring a few exceptions.

We recommend that you consult your accountant for a detailed analysis of the tax implications for your business regarding Key Man Insurance in Dubai.

What Happens If the Key Man Quits?

If the Key Man quits your organization and joins another one, then you have the following options:

• Discontinue paying premiums and let the policy lapse,
• Transfer the Key Man Insurance of that employee to her/his new employer by arriving at a mutual understanding,
• Transfer the Key Man Insurance to the employee herself/himself by arriving at a mutual understanding,
• Continue paying the premiums and receive the final amount on maturity, if your insurer allows that to be an option.

Top 4 Reasons Why Businesses Should Buy Key Man Insurance in Dubai

Sustain the blow of losing a key employee

When you lose a Key Man due to unforeseen circumstances, it is only natural that your business will come under serious distress. While money can’t solve everything, the timely cash infusion that comes with Key Man Insurance can help you tide over the situation and bounce back stronger.

Maintain commercial and financial stability

Direct and indirect losses to sales, profits, and stock prices that arise due to the loss of a Key Man can be reasonably indemnified if you have Key Man Insurance in place. It can help you to stay afloat until you find a suitable replacement. The cost of replacement can also be covered by the insurance.

Ensure business continuity at all times

If the Key Man is unavailable to work for extended periods due to critical illness or disability, the business can continue to function with the insurance money while everyone waits for the Key Man to return. This can play a major role in ensuring that the business endures the tough times while allowing the Key Man to recover and heal.

Prevent the erosion of business capital

Often, the Key Man is a person who guarantees loans for the business, and the loss of the Key Man can lead to a significant erosion of capital available to the business. This can be prevented by getting the Key Man Insurance to cover such scenarios, which will also give more confidence to bankers and creditors.

If you are looking for Key Man Insurance for your business, then the best way forward is to conduct a detailed risk analysis for your business, identify the coverage you need, and then buy Key Man Insurance from a trusted provider. We at Seguro Insurance are a leading insurance brokerage company in the UAE and can help you iron out the details for Key Man Insurance. We can also help you secure the best Key Man Insurance in Dubai through our reputed insurance partners.

Know more about us by visiting https://seguroinsurance.ae, or get in touch with us here.