To protect the most important people in the company
The key man is a business manager or an essential collaborator for the proper functioning of a company. His inability to carry out his work temporarily or permanently risks causing a drop in turnover or even cessation of the company's activity.
Key man insurance aims to compensate for the operating loss of a company to guarantee its sustainability. It also offers interesting tax advantages.
Who is the key man?
In a company, it is the person who has a know-how, a technique, an expertise, unique responsibilities which make him an indispensable element of the company.
The entrepreneur
The key man is most often the founder and entrepreneur. The company was created by him and for him. It is intrinsically linked to its skills and its irreplaceable presence.
Some examples of key men:
A Michelin-starred restaurateur,
A great couturier,
An associate lawyer,
...
The key man can also be an essential collaborator such as an employee of the company who takes an active part in achieving turnover, such as:
- A very efficient salesperson.
- A nose in a perfumer.
- A researcher in a laboratory, etc.
Why take-out key man insurance?
A few figures speak for themselves:
- Almost 15% of the companies transferred following the death of the manager fail to overcome his death and go bankrupt.
- Worse still, a third of companies have to cease or reduce their activity following the disappearance of an essential employee.
The subscription of key man insurance aims to compensate for the absence of the one without whom a business cannot survive.
What does the key man insurance cover?
It ensures the financial consequences for the company of the disappearance of the key man.
For example, it can take care of:
- operating loss,
- repayment of bank loans,
- reorganization costs, etc.
Key man insurance participates:
- to find a replacement for the key man as much as possible,
- to maintain the company's brand image,
- to maintain the confidence of partners, customers and investors.
It is not the key man who insures himself in a personal capacity. The company is the subscriber and the beneficiary of the contract. The key man is the insured.
Please note, not all key men can be insured. Some insurers define a maximum age not to be exceeded for membership (generally between 55 and 65).
Define the financial needs of the business
The amount of capital to be insured is very variable. It can vary from a few thousand to several million euros. The business manager must determine, with his accountant for example, the loss of gross margin caused by the disappearance of the key man.
The company must therefore define the amount and the most appropriate guarantees for its situation. In this situation, it is important to be well advised by your insurer to determine the best level of guarantee and contribution.
The amount of the premium insurance
It is according to the capital to be insured, the age and state of health of the key man that the insurer will set the amount of the premium. The payment dates for the latter are freely determined by the insured.
Complete the medical formalities
For low capital, a simple health questionnaire concerning the key man is sufficient before taking out the contract. However, if the capital involved is greater, additional medical examinations may be required by the insurer.
Different elements will be taken into account in the health check: age, sex, sports practice, etc.
Good to know:
Whether or not you smoke can have a direct impact on the amount of your membership fee.
Moreover, insurers sometimes offer two rates, one for smokers, the other for non-smokers.
In which cases does the key man insurance intervene?
Temporary incapacity for work (ITT) following an accident or illness. The insurer will thus be able to pay daily allowances to the company to cover professional costs,
The death. This is the situation most covered by key man insurance. The two types of insurance compensation in the event of death:- The compensation system: the compensation is set according to the financial loss suffered (loss of the company's gross margin following the death of the key man). For example, a company is insured for € 1 million. If its gross margin loss is € 500,000, it will only touch € 500,000.
- The package: it is a fixed capital paid to the company. It is calculated according to the needs of the latter as soon as the contract is taken out. For example, the company is insured for 1 M €. In the event of the death of the key man, she will receive this sum. It is the device most chosen by policyholders. It is closer to the life insurance system.
Good to know:
The key man contract allows, for the indemnified company, to deduct the premiums paid (since the subscription of the contract) from the taxable result. · In the event of a claim, the compensation paid to the company is added to the profits for the current year and is therefore taxable. · If it results from the death of the key man, the law authorizes the spreading, in equal parts, of this exceptional benefit over five years: the year of payment of the compensation and the following four.