Key Man Insurance Singapore

Key to Keyman’s Protection 

 

Key Person Insurance Timeline Singapore

 

Keyman protection is about insuring the key person in your organisation. The key person could be someone that add tremendous value or the most influencial person that directs the organisation to company’s success.

Because they are hard to replace, ensuring that they are well covered will also ensure the company’s success legacy.

So, if one day, unforeseen circumstances happen, example pre-mature death of the key person, your company will not fall into financial turmoil because of shareholders and employees losing confidence in the company.

The key to keyman protection is to make sure that you have enough finances to tie over the difficult period if the key person unexpectedly leave the company.

Our consultants are trained to make sure that your keymen are adequately covered and if he/she unexpectedly leave the organisation, the company will benefit from the proceeds of the policy.

 

 

What Is A Keyman?

A keyman or key person is someone who plays a vital and important part in the smooth running and success of the company.

The keyman could possess unique competency or abilities that is not easily replaced or substitute by another person in the company.

Upon the death or total permanent disability of the key person, the company will suffer significant impact financially or operationally.

So, how do we determine whether a person is a keyman?

A keyman could be someone who:

  • is responsible for a huge portion of the company’s revenue or sales
  • is difficult or expensive to replace
  • steers the vision and direction of the company
  • is partly or entirely responsible for the profitability of the company
  • possesses unique skills, know-how, technical knowledge, expertise, experience, qualifications or abilities that are hard and difficult to substitute or replace

Most of the time, the keyman refers to the business owner himself and key employee can be definite as the an important employee of the company.

Who Could Be The Keymen In Your Company?

There can be more than one keyman or key person in your company.

Most of the time, the key person include, but not limited to:

  • sole proprietor
  • partners in a partnership agreement
  • directors of the company
  • Managing Directors
  • Chief Executive Officer
  • Chief Operations Officer
  • Chief Finance Officer
  • Chief Accountant who is responsible for the accounts of the company
  • Chief Engineer who oversees all engineering matters
  • top surgeon with a strong reputation in the medical field
  • award-winning architect
  • award-winning Chef that attracts food lovers to your restaurant
  • Chief Strategist who charts the directions of the company
  • top sales person who brings in the most sales consistently every month
  • technical expert
  • business owners himself
  • etc etc

What Is Keyman Insurance Or Key Person Protection?

After determining a keyman in your organisation, keyman planning is the next step to minimize potential sudden and unexpected loss of this keyman.

Keyman insurance protect the company against adverse effects such as decrease in sales and revenue, loss of customer and partners confidence in the company, potential stock turmoil due to the shareholders or investors losing confidence in the company, etc.

The insurance protection provides the company with financial cushion for company to tide over the period that the keyman is absent. The payout of the insurance will allow the company to buy time to search and train a suitable candidate for the replacement of the key person.

Why The Need For Keyman Protection?

May I check with you?

When you buy company car, heavy machinery or even office premises for your business, you will think that it is essential or even mandatory to insure the item as they are precious money-making tools that generate sales and profits for your business.

It is staggering to know that most companies fail to recognise that the most important asset in a business is actually the manpower and employee are the people behind those machinery. The machines will never work when there are no humans operating them. Your premises are useless if no humans are utilizing them.

So, the real force that generate sales, profits and revenue for your company are the people that works in your company. It is even more important to value and insure the person that contributes significantly to the business.

When the key person unexpectedly left the business due to death or total permanent disability, keyman insurance protection will provide financial assistance for a period of time so that the business can recover and back on track again.

It is popular these days that the company will look into more than death and total permanent and disability coverage. Most of the time, a term insurance policy could do the job.

Critical illness insurance is an increasingly common to include illness benefits in keyman planning.

 

Key Man Insurance Illustration Singapore

 

Why Is Keyman Protection Necessary?

Keyman protection is designed to help the business to tide over the difficult period by providing financial assistance. As the key person has left the company due to death or total and permanent disability, the company need a cushion for the sudden loss of this key player in the business.

These are some of the reasons why keyman protections is essential for your business:

  • When the keyman has left unexpectedly, the sudden loss of sales and revenue will impact the business greatly
  • The payout of the keyman insurance will make up for the difference in the revenue or sales of the business
  • It provides the finance or funds to find a suitable replacement for the role
  • It also provides the finance or funds to hire the candidate
  • It provides the finances to train the replacement so that he is able to recuperate the loss of sales or revenue
  • Reconstruction of the company is also one considerations that will need financial support and assistance from the keyman protection

In summary, the funds could be used during this difficult period to find, hire and train the suitable replacement so that the business can be back on track again.

What Could Be The Possible Effects On A Business Without A Keyman Protection?

Without a keyman protection or without the proper keyman planning, when the key person left unexpectedly, the result could be detrimental and could result in the following:

  • Employee’s confidence of the company will plunge
  • Loyalty of the employee could be weaken as they are not sure whether the company will continue to strive after the key person has departed
  • Market share could be lost to compeitiors
  • Potential and future business could be effected due to the loss
  • The management will not be able to make business decision
  • Shareholder’s confidence has plunge making them to cash out on the business
  • Customers or consumers could turn to competitors since the key person is not around anymore

What Are The Benefits To A Business When You Have a Keyman Protections?

They always say that if you fail to plan, you plan to fail.

Keyman planning is important for any businesses in Singapore and these are the benefits of having a keyman insurance protection:

  • Employee confidence is maintained and assured
  • Employee continues to stay loyal in the company
  • Customers are assured of the company’s foresight
  • Employees are assured that company is keen in company’s sustainability and continuity
  • Business partners are assured that the company is keen in the long term business sustainability
  • The company’s reputation and financial standings remains strong and sound
  • The interest of the company as a whole is being protected
  • Credit lines remains stable as business is financially strong
  • The proceeds from the keyman insurance will allow the minimal interference to the business as the company’s financial soundness is still strong
  • Buy-outs or takeovers by competitors or companies are avoided with very strong and sound financial standings

How To Value A Keyman?

There are a few ways to calculate the value of the keyman in your business.

One very simple method will be to do a simple multiplication on the profits that this keyman brings into the business.

To give a practical example, ABC Pte Ltd has a business profits of $1,000,000.

John who is the keyman is the main person that brings in $500,000 (50%) of the sales and revenue for the business.

If unexpectedly he is not able to work and continue to contribute to the business, the company estimates that they will need 5 years to find a suitable replacement, train and restore the profits.

Valuation of Keyman = Keyman Contributions To The Business X No. of Years Needed To Replace The Keyman

Therefore, once the John, the keyman, has unexpected left the business, The company will need = ( 50% of $1,000,000) X 5 years = $2,500,000 to replace John.

 

Does Keyman Insurance Premiums Have Tax Treatment (Tax Relief) From IRAS in Singapore?

The premiums for insuring your keyman can have tax relief from Inland Revenue Authority of Singapore (IRAS) in Singapore.

Therefore, when doing tax/accounting filing, you may follow the e-Tax Guide on “ Deductibility of “Keyman” Insurance Premiums ” to file the premiums under Deductible Business Expenses for your business.

How Do I Get Keyman Insurance?

Before obtaining the keyman insurance for your key person, there is a few points that you might want to think through.

What is the purpose of getting the keyman insurance? Is it part of the company’s business succession plan?

If it is for succession planning, we will also encourage them to think and look into setting up a buy-sell agreement.

Therefore, we strongly encourage you to engage a professional financial planner for your keyman planning. Without proper planning, your keyman protection could be compromised and when unforeseen circumstances happens, the proceeds from the insurance is not enough for the business to sustain.

You may contact our professional financial planner for a free consultation on your business before purchasing your keyman insurance.

About Financialogy

Financialogy is a group of competent and professional financial planner that has many years of experience in business and personal financial planning.

Our wide range of insurance products meet all your financial needs and goals including your keyman protection needs.

Our goal is to educate and meet all your financial needs to close the protection and insurance gap for everyone in Singapore.

Want To Know More Keyman Insurance?

If you would like to understand more about key person insurance, you may contact us at (+65) 9380 2839 or you can click on the button below to enquire.

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About Us

We are a licensed and certified financial planner in Singapore that provides a comprehensive financial planning solutions to meet all your financial and insurance protection needs.

Contact Information

Address: 47 Scotts Road, Goldbell Towers, Singapore 228233

Contact Number: +65 9380 2839 

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