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1. Why should a Company, Sole Proprietorship or a Partnership buy keyman assurance?

Keyman assurance is primarily used for:

• Funding the recruitment and training efforts to replace key employees;

• Settling any loans due or other expenses or bills as the company transitions;

• Boosting the credit position of the company and Securing loans to help the business grow and expand. Keyman assurance is often a basic requirement of lenders as well as investors to secure expansion funds. Reputable lenders usually require keyman assurance as prerequisites to funding. Even where keyman assurance is not a requirement to secure a loan, the added credibility offered by such insurance is highly valuable when facing financiers and investors;

• Transitioning company ownership to its' successors. Business succession planning is highly important for small businesses, and keyman assurance plays a vital role in this process. Much of a business owner's personal assets may be tied up in the business itself and this cover will avail the cash value and provide the liquidity needed to successfully transition a company's ownership without taking a toll on its earnings ability and cash flow;

• Purchasing stock from the estate of the deceased owner, especially for small or start-up business owners whose business should have the ability to put funds into the company to sufficiently replace the expertise of one or more key employees/partners. They may also need to have cash available to "buy-out" a deceased or disabled partner or shareholder's family. They must be able to provide funds to effectively transition when an owner retires from the company;

• Offering salary continuation arrangements to the spouse of the deceased;

• Funding executives’ compensation plans.

2. What are the advantages of Keyman Assurance?

• Peace of mind: Business owners, investors, and creditors can all rest assured that the business is protected.

• Key person attraction and retention: In addition to securing a company against the negative effects of the loss of a key person due to death or disability, keyman assurance can help a business to retain key employees. Generally, small to medium size companies employ highly valuable key people that generate a large portion of the annual revenue. To avoid losing such employees to competitors, companies can provide key man insurance as an employee benefit while also protecting the business by linking benefits with continued service.

• Affordability: Keyman insurance is a low-cost method of life and disability cover, whose costs are nominal in contrast to the financial loss that can be suffered by the demise of a company. Options such as recruiting and training capable employee replacements, handling debt and liquidation of the company, or even successfully selling the company are all within reach when a business is covered by keyman assurance. When keyman assurance has not been secured for a business, a key executive's death or disability often results in the closing of operations or a sale at a less than fair market value price. Additionally, inexpensive term assurance or an endowment fund can be used to fund keyperson life assurance.

• Choice. Companies can decide for themselves which employees need to be insured.

• Accessibility: Keyperson assurance policies are simple to obtain, with no special filings or rigorous disclosures required.

• Zero tax: In most cases, funds from keyman life and disability policies are received by the company tax free.

3. How much Keyman Assurance do employers / partnerships need?

Valuing key employees is important, but it is usually also quite difficult. What is the exact monetary value a key employee or owner brings to your business? This figure is commonly based on a loan amount the company is acquiring or perhaps another arbitrary amount an investor has calculated. While the amount of coverage should address the specific needs of the company, the insurance company's primary goal in valuing a key person for life and disability insurance is to determine the realistic loss associated with the death or disability of such employee. Often businesses request an amount of key man insurance that is not reasonable or even available from life and disability insurance companies. The insurance amount must be justifiable- not simply equal to the amount of funds being borrowed from a lender.

To determine the amount of key person insurance that will meet the needs of both the business and the insurance provider, there are three valuation methods, namely:

1. The multiples of income method: The simplest and most common method used to determine the value of a key executive or business owner is the multiples of income method. We can base the amount of the keyperson assurance needed on a multiple of five to ten times the employee's current salary compensation and benefits. For example, using a multiple of ten times annual salary, Kshs.60,000,000 would be the amount of insurance needed for a key person with a salary package totaling Kshs500,000.

2. The replacement cost method: In this method, the estimated cost of replacing the key employee determines the amount of keyman assurance needed. To calculate this replacement cost, not only salary, but also the expenses needed to recruit, hire, train and bring the new employee up to the same level as the former one must be included. Additionally, there should be added to this the expected decline in revenue following the death or disability of a key person.

3. The contributions to earnings method: The percentage contribution the key employee adds to the company’s bottom-line profit is the basis of the contributions to earnings method. For instance, a small business may have one top salesperson that is contributing the bulk of the company's sales, thereby generating a major portion of the company's revenue. To use the contributions to earnings method, the actual value of that portion of the company’s yearly profits would be multiplied by the number of years required to sufficiently train one or more replacement employees.

4. Does my Business/Employer/Partner need Keyman Assurance?

Keyman assurance actually meets the needs both large and small companies, but it is most crucial for start-ups that rely exclusively on the talents of a small number of people, small and medium-size businesses. This is because the success of this size company hinges solely on the skills and experience of a select handful of individuals. Should one of these key employees or executives experience death or disability, the company may very well meet its' demise. Other businesses that need keyman assurance are companies that need to secure financing, companies in niche markets where employee replacements are not readily available, companies with one exceptional sales person, and companies in which the owner requests liquidity in the event of their death or disability.

5. How are the proceeds in a Keyman Policy disbursed in the event that a business uses it to secure a loan?

To ensure that the lender receives funds to cover the loan balance due in the event the key person or business owner dies or is disabled, a collateral assignment is common procedure when keyman assurance is used to secure the loan. This is actually a lien against the policy that ensures that proceeds are primarily paid to the "assignee", or lender. The balance of policy proceeds are then given to the beneficiary of the policy. A collateral assignment gives the lender the total loan balance amount due, and gives the business the remaining insurance proceeds.

6. What are the processes for a Company/Partnership to apply for Keyman Assurance?

• Seek for the services of a professional Independent insurance agent and/or apply directly to ICEA Limited to ensure that you secure the best value on the optimum policy for your business / employer.

• Determine the life and disability insurance company that offers the best policy to suit your company/business and ill in most of the formal insurance application.

• Review and sign Keyman assurance application. Be certain to read through the application for complete accuracy, sign where indicated and then return to us. To bind coverage, you need to enclose a check made payable to ICEA Limited for the first premium payment. Until remittance of the first premium payment, coverage will not be in effect.

• If there is need for a medical examination prior to approving a keyman policy, ICEA Limited will schedule an appointment at your convenience, an approved and licensed medical examiner who will complete the examination. During this exam, your height, weight, and blood pressure will be recorded. You may also provide blood and urine samples, your detailed account of your medical history and other requirements if so desired.

• Once ICEA Limited receives both the keyman life application and exam paperwork, the underwriting process begins and a representative review your application and examination report will be analyzed. Financial information on the business and your driving record may also be requested.

• Before approval, you may be updated as whether policy will be approved at a slightly higher premium rate and/or if there will be need to review information during the underwriting process. Your policy may be approved other than applied, in which case the insurance company with which you applied will check the market to verify the accuracy of such offer.

• Upon approval of the keyman assurance policy with all the contract terms and conditions, you will be notified and thereafter, it will be forwarded to you directly or through your professionally appointed agent.

• You will take time to carefully review policy documents, contacting your agent and/or ICEA Limited with any questions. Take note of all instructions and requirements that are necessary to begin your coverage. Remit the initial premium due and all completed and signed forms required. Your key person insurance policy is now effective!