Keyman protection is a great benefit for top performing employees and execs. But what happens if that employee decides to leave?

For any business to succeed long-term, retaining key members of staff is essential.

Companies put a lot of resources into finding people who fit their culture, with the talent to grow their business.

As added protection, companies will often take out keyman insurance, which provides some financial protection in the event their top performing employees or executives pass away or become too ill to continue in the business.

Sometimes, of course, your top performing employees might decide to leave your company in search of a new challenge.

If they, what happens to your keyman insurance protection?

That’s what we’ll look at here.

Challenge of staff retention

Employee retention is a much bigger challenge than it has been in the past.

In previous generations, people tended to stay in jobs for life.

This is what made keyman insurance so popular, because you could pretty much guarantee your employee would stay with you for the length of the policy.

That’s not the case today.

Employees have a lot more choice on where they work, and many are more open to moving employers every few years. 

Today employees tend to stay in a job for just over four years, according to some studies.

While top executives may stay in the business longer (because they might have financial interests in the company) it does increase the chances that a key person will leave with an active keyman insurance policy on them.

So what happens to your keyman policy if the employee leaves?

If you invested in a keyman insurance policy for an employee who subsequently leaves, you have a few options:

  1. You can stop paying the premiums and simply let the policy run out
  2. Keep paying the premiums
  3. Transfer the policy to the keyman

One thing to keep in mind, is that while it might not be worth paying premiums on the policy after the employee has left, you could still look to recover some of the investment you’ve made.

It’s possible, for example, that you could sell the policy to a third party – known as a life settlement.

In this case, the original holder of the keyman policy (either you or your employee) gives up any claim to death benefits from the policy, but doesn’t have to keep the policy active either.

Instead, you could receive a payout for the policy.

This would help provide some financial benefit for losing the key employee.

Just be aware that not every keyman policy qualifies for a life settlement, so you’ll need to check your options before going down this route.

So is keyman insurance worth it?

The fact is, like any life insurance policy, keyman insurance is more of a safety net than a policy you ever hope to use.

It’s impossible to predict what will happen in the future and if the worst does happen, it will always be better to have the cover in place than not.

At Rigby Financial we’ve been advising business owners on the best insurance policies to protect themselves and their employees for decades.

To find out how we can help you cover your business for any eventuality, get in touch.

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