Keyman Insurance for Businesses in Gauteng, South Africa

The Story Behind Every Business

Most businesses begin with a simple idea—a way to earn a living by applying a skill. A carpenter might start a furniture business, a chef might open a restaurant, and an accountant might launch a consulting firm. These individuals take their expertise, turn it into a service or product, and build something sustainable.

But as the business grows, it often becomes bigger than just one person. The furniture maker realises they need a marketer to help sell their products, an accountant to manage the finances, and a logistics expert to ensure smooth deliveries. Slowly, a team forms, each person playing a crucial role in the company’s success.

Sometimes, it’s not just one skilled entrepreneur starting a business—it’s a group of individuals with different expertise coming together to create something bigger. A financial expert and a tech developer might join forces to launch a fintech startup. A doctor and a healthcare administrator might partner to open a private clinic. Each person brings something unique to the table, making the business stronger and more resilient.

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But what happens if one of these key individuals is suddenly no longer there?

The financial expert driving investor relations, the lead designer overseeing production, or the visionary entrepreneur who holds the company together—what if they pass away or become disabled? Their absence could bring uncertainty, financial instability, and even the risk of business failure.

This is why Keyman Insurance is essential. It acts as a safety net, ensuring that if a critical person is lost, the business has the financial means to recover, adapt, and continue thriving.

Why Do You Need Keyman Insurance?

Running a business comes with many risks, but one of the biggest threats is the unexpected loss of a key individual who is critical to the company’s success. Whether it’s a founder, top executive, or a highly skilled employee, their absence can cause financial strain, loss of revenue, and even jeopardise the future of the business.

This is where keyman insurance comes in. Also known as key person insurance, this policy provides financial protection in the event that a key individual in your business dies or becomes permanently disabled. The payout from the policy helps the company cover losses, fund operations, and even hire a replacement, ensuring the business remains stable during uncertain times.

You cannot buy insurance when you need it!

What Is Keyman Insurance For?

Keyman insurance is designed to protect the financial interests of a business by ensuring continuity when a key individual is no longer able to contribute. The benefits of having a keyman policy in place include:

• Covering lost income: If a business partner or a top-performing employee passes away or becomes disabled, the business may lose revenue. Keyman insurance provides financial compensation for this loss.

• Funding recruitment and training: Finding and training a replacement for a skilled individual takes time and money. The insurance payout can help fund the transition.

• Providing stability for investors and stakeholders: Having keyman insurance reassures investors, lenders, and shareholders that the business has a contingency plan in place.

How Do You Determine How Much Cover You Need?

The right amount of keyman cover depends on several factors:

1. The financial impact of losing the key person – Consider how much revenue or profit is directly tied to the individual.

2. Cost of hiring and training a replacement – Assess how long it would take to find and train a replacement and the associated costs.

3. Ongoing operational costs – Calculate the expenses the business will incur during the transition period without the key individual.

A simple formula often used is:

Keyman Cover Amount = (Annual Salary of Key Person × 5 to 10) + Recruitment Costs

This provides a rough estimate of the necessary coverage, but working with a financial advisor ensures a more precise calculation tailored to your business needs.

How Long Should a Keyman Insurance Policy Run?

The policy term depends on factors such as:

• The expected working years of the key person – If the key person is expected to remain with the company for 10 years, a policy of at least 10 years may be advisable.

• Succession plans – If there is a structured plan to train successors within a certain timeframe, the policy can be adjusted accordingly.

A general rule is to align the policy duration with the period the key person is expected to be indispensable to the business.

Revising Your Current Keyman Insurance Policy

Many businesses take out keyman insurance policies when they are first established, but as the company grows and evolves, the needs of the business change. Over time, businesses may become less reliant on specific individuals as operations become more structured and contingency plans are put in place.

Why Should You Review Your Existing Policy?

• Over-Insured or Under-Insured: The coverage amount may no longer be appropriate. Some businesses may be paying high premiums for excessive coverage, while others may have outgrown their current policy and need increased protection.

• Change in Key Individuals: A policy that was originally taken out for a specific key person may no longer be relevant if roles have shifted or new leaders have emerged in the business.

• Premium Structures: Many older keyman policies were structured as whole of life insurance, which results in higher premiums. In most cases, businesses only need coverage for a set period, making term insurance a much more cost-effective option.

• Business Financial Stability: As businesses grow, they develop reserves and alternative risk management strategies, reducing their dependency on insurance payouts in case of a key person’s absence.

How to Optimise Your Keyman Insurance?

• Review and Compare New Policies: Work with an advisor to assess if there are better policy structures available that align with the business’s current needs.

• Switch to Term Insurance: If the policy was originally structured as a whole life plan, transitioning to a term-based plan could significantly reduce costs.

• Adjust Coverage Amounts: Reduce coverage for individuals who are no longer critical to business continuity and increase coverage for those who are essential.

• Ensure Tax Efficiency: Ensure the policy is structured correctly to optimise tax benefits under current South African tax laws.

Regular policy reviews—ideally every 3 to 5 years—can help ensure that a business is not overpaying for unnecessary coverage or leaving itself vulnerable due to insufficient protection.

Do not postpone!u

Final Thoughts

For business owners in Gauteng, keyman insurance is a crucial tool for safeguarding a company’s future. The right policy ensures that your business can survive the loss of a key individual without financial distress. By carefully assessing coverage needs, choosing the right policy term, and structuring premiums efficiently, you can secure your business at a reasonable cost.

If you already have a keyman insurance policy in place, now may be the perfect time to review it. You might be overpaying for unnecessary coverage or missing out on potential cost savings.

📌 Get in touch today for a free keyman insurance policy review. Let’s make sure your business has the right protection—without overpaying.

Your business may also need Buy & Sell and Contingent Liability Insurance.

Get in contact with us via our website or contact us at albert@asbrokers.co.za

Albert Schuurman