The « key man » guarantee is intended to compensate for the damage suffered by the company in the event of the unavailability or disappearance of the person it considers to be its « key man », whose collaboration is essential to the business.
The key man can be a manager, a scientist, a technician, a sales person or even a person from outside the company.
The operation consists of the company paying non-refundable premiums to cover the risk of losses resulting from the disappearance of the employee.
The occurrence of the insured event (death or disability of the insured) results in either :
• The payment of a capital sum, the amount of which is fixed at the time of subscription,• Compensation for the loss caused by the unavailability of the insured person; this is a kind of ‘business interruption’ cover.
An industrial, commercial or agricultural company insures itself against loss in order to have the necessary liquidity at a critical moment to :
• Compensate for a drop in turnover
• Facilitate the reorganisationThe insured on whose head the risk rests must be determined. This could be, for example, a person who :
• Generates or provides a significant part of the company’s turnover;
• Monitoring the smooth running of all production services;
• Insuffle all strategic directions, defines future development lines, etc.
Hence the term « key man ». To protect themselves against the consequences of this absence, insurers offer companies death insurance policies. The persons who are eligible for this qualification must be designated according to the specific circumstances of each company.
In practice, it is necessary to examine the organisation and operation of the company, the legal links between the company and the « key person », and the assets and skills that the employee has (possession and mastery of an art, science or technique directly related to the company’s purpose). The most common case is that of the effective manager(s) in small and medium-sized companies.
Details : Insurance contracts of this type are exempt from the 20%/31.25% levies on the capital paid out that may be applied on the death of the insured.
Key man insurance has the characteristics of a life insurance contract taken out for the benefit of the company.
It receives the benefits in the event of the death of the insured employee. In this insurance, the designation of the beneficiary is irrevocable.
The insured risk concerns the pecuniary loss resulting from the disappearance or disability of the person who is no longer able to work in the entity.
Insurance can be indemnity or lump sum :
• Compensation: it covers the operating losses depending on the actual situation of the company; The capital to be guaranteed depends on the size of the company, the loss of earnings and the costs of finding and training a replacement for this « key man »;
• Flat rate: the amount paid out at the end of the contract is determined at the time of subscription. In the event of the death or permanent incapacity of the insured, the insurer pays the company the insured capital. In the event of temporary unavailability, the insurer pays the company a daily or weekly indemnity.
In the case of a family business, for example, it may be appropriate to safeguard the family’s assets in view of the size of the inheritance tax, which can be very high, to maintain the family’s equilibrium by achieving a satisfactory division and an appropriate distribution of powers, and to provide the transferee with the means to ensure the survival, continuity and growth of the business.
A different type of operation is then put in place, sometimes referred to as partners contract.
