Keyman Insurance is one of the effective ways to diversify operational risk. Business partners are considered as an essential part of a successful company. In case one of the partners bumps into an accident and passes away, operation of the company is inevitably affected and the shares are possibly leaked from the legacy of the business partner.
Once the partner unfortunately loses his/her life, the heir will get the shares of the deceased partner in form of inheritance. Generally there are only two options for the other shareholders:
1) Accept the heir to directly participate in the operation of the business; or
2) Redeem the shares of the deceased partner in cash. The money involved is definitely enormous to redeem the shares.
Therefore, adopting keyman insurance in form of personal life insurance to prevent unexpected the outflow of shares is prevalent in many successful companies, and it also prevents the company from insufficient cash flow when the accident occurs.
Under the protection of keyman insurance, partners can redeem the shares of deceased partners with the compensation without spending the capital of the business. The heir can also receive reasonable compensation without affecting the operation of the business, which allows the decision makers to concentrate on helping the business strive.
How to determine the insured amount?
The first step is to evaluate the total value of the company asset in the foreseeable future, and determine the insured amount based on the estimated value and the percentage of shares held by each partner.
For example, the estimated value of the business is 10 millions HKD, and there are 2 stakeholders holding 50% of the shares each. The insured amount of each business partner should be 5 millions HKD (10 millions HKD x 50%). Under the protection of keyman insurance, the company's shares are secured and the company will not suffer from a sudden cash flow shortage when misfortune strikes.
Policy reverse mortgage/ loan
Not only a life protection for the business partner, keyman insurances can also be regarded as an asset with liquidity thanks to policy reverse mortgage. It allows the owner to apply for a loan from insurer based on the cash value of the policy to alleviate shortage of cash in the short term.
Feel free to contact our helpful consultant at 3575 6888 for more information on Keyman Insurance!