Keyman cover is normally taken out by the directors or partners of a company to cover key persons who work for them. If a key person falls ill or dies it may leave the company with a dilemma in trying to replace that person with someone of the same quality.
The company normally takes out the policy on the life of the member of staff, and benefits can be made payable to the company or possibly dependants. The level of cover needed is determined by the persons salary and how long it is estimated it would take to replace him or her.
Shareholder or director protection is similar to keyman cover but can protect the company's shares from falling into the wrong hands on the death of a shareholder. Benefits are payable to the company and can then be used to repurchase the shares, if required. By having this type of protection a number of difficult problems can be overcome.
Following the death of a partner or shareholder the interest may pass to a beneficiary who does not have the skill or experience to make a worthwhile contribution to the business. They may also prefer to receive a cash payment to release them from the organisation.
If the partner or shareholder suffers a critical illness and cannot work they may want to realise their interest to fund future care. Again the firm my not have the ability to raise the funds to buy the interest. Without this protection surviving owners would need to re-allocate funds from other areas of the business placing a strain on the resources of the business.
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