Keyman life insurance is insurance purchased by a business on the life of an owner or employee whose services contribute substantially to the success of the business. The company is the owner, the premium payer and the beneficiary of the policy. The objective of Keyman Insurance is to indemnify an organization against the monetary loss resulting from the death of a key employee.

What the insurance will do:

  1. Keep the business running.
  2. Assure creditors that their loans are safe.
  3. Assure customers that the business will continue to operate.
  4. Cover the special expense of finding, attracting, and training a new person to replace the missing key man.
  5. Cover the costs of the mistakes the successor will make until he or she learns the things the deceased knew from experience.
  6. Offset the reduction in income so that fixed overheads can be met.

Additional benefits

  1. Provision of a readily available fund. The cash value is obtained quickly and without publicity when a business has a sudden need for cash to take advantage of unexpected opportunities or to meet unforeseen emergency expenses.

  2. The cash value is ideal for a bank loan because it has a guaranteed market value that increases with the passage of time. The business can borrow on the cash value if the insurance company's interest rate is lower than the bank rates.
  3. The cash value appearing on the balance sheet indicates sound financial management with long-range planning. Creditors are obviously more willing to look favourably on a company that has insured its human assets. Please note that these additional benefits are subject to the type of insurance purchased, Term Assurance has no cash value.


A properly executed and funded buy-sell agreement is the ideal solution to the thorny problems incurred by a partner's death, unless the shares pass to each other in a Will. The buy-sell agreement should be drawn by lawyers and such agreements generally contain the following commitments:

  1. The heirs are absolutely bound to sell.

  2. The surviving partners are bound to buy.

  3. The price or formula to be used when the survivors pay the heirs is stated clearly.


Life Insurance is the best way. It guarantees the full purchase price. At the partners death, the proceeds are paid to the surviving partner(s) by the life insurance company and the partner or partnership uses the money to buy the deceased's share. The number of policies = the number of partners.