Key Man Insurance, sometimes known as Key Person Insurance, is an important form of business insurance.
Key Man Insurance is basically described as an insurance policy taken out by a business to compensate that business for financial loss that would arise from the death or extended incapacity of the member of the business specified on the policy.
The aim of Key Person Insurance is to compensate the business for losses and facilitate business continuity.
This is very important if there is more than 1 owner in a business. Should one of the partners in the business die, or be unable to work in the same capacity as before then the spouse, partner or next of kin will automatically retain control of the partner's share of the business. This means that they will have equal decision making rights and equal profit share.
But usually they don't have the experience, intelligence, or simply the will to work in the business which will cause profits to suffer and cause the other partners to lose money which is potentially disastrous for any business. In this case best solution for other business owners is to purchase the shares of the business from the deceased's family. And by having this type of insurance this can be easily facilitated with correct buy-sell agreements in place.
By having this insurance in place the other partners can continue running the business and the family of the deceased partner is adequately compensated for their share of the business.