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Key Man Insurance

Key Man insurance can provide financial support from tragedy. Learn more about the purpose of key man insurance and how it works.


The term 'key man' is well-known among investors, especially when it comes to large firms. However, not every individual knows it.


Financial advisors from The Kelley Financial Group can help guide people through their financial journey with their knowledge and expertise.

The Basics of the Clause

A key man, or the key man clause, is a specific contractual clause that does not allow a fund manager or an investment firm to make new investments when one or more key people are not available to devote the time that's necessary for the investment.


As mentioned by the previous definition, this clause might attract many businesspeople. However, understanding who the key man or key persons is essential.


Key men are crucial employees or executives that the business needs to operate, and whose disability, death, or absence would negatively impact the company's operation.


Generally speaking, the key man has leadership skills, knowledge, and experience, which others consider essential for the business to work and succeed.


Numerous businesses depend on some executives. When one dies, spends too much time on other jobs, quits, or is otherwise unavailable, the firm might put investments on hold.


On some occasions, the key man being unavailable means the investment firm ends. This, of course, depends on how fundamental they were for the operation of the company. Therefore, it's more likely to occur in small businesses.


Key men are crucial for companies to operate smoothly, which is why managing this contractual clause is essential. Therefore, getting experienced help could make a difference. Financial advisors from The Kelley Financial Group are ready to help their clients and guide them in their process.


The Kelley Financial Group has years of experience in guiding businesses and individuals through complex financial matters.

Importance of the Key Man Clause

The key man clause is common in investment firms, especially when it comes to the ones that handle millions of dollars’ worth of people's money.


People might wonder why this is so, but the answer is more straightforward than they might think. When someone decides to run a business responsible for so much money, they want to guarantee that the professionals making the decisions know what they're doing.


There are usually a few decision-makers in large investment firms. This is essential for the owners because they don't want to leave the investment choices up to anyone. However, the absence of one or more of those people might mean something very unfavorable for the company, and it could put people's money at risk.


The importance of the key man clause lies in the fact that it reassures investors. In other words, it guarantees that only senior executives or similar professionals in the company are allowed to make crucial decisions about their money.


Considering that investments might stay the same for some years, the task of the key man is to establish that only senior executives handle the decision-making process. If the person they chose is unavailable, the contract allows the remaining executives to pick a replacement.


Even though the key man clause benefits clients, having an experienced advisor to guide them and help them understand all the financial details of the contract they're signing can be beneficial. The Kelley Financial Group offers financial advisors who are experienced and can support people through their process.

How Businesspeople Implement the Key Man Clause

Businesses don't necessarily have to implement the key man clause, but those that do, can offer a sense of reassurance to their clients. This part of the contract protects customers and the company. Here’s how businesses can implement it:

Companies Create the Clause

The first step when implementing the key man clause is to create it. Businesses need to identify the crucial employees, who are often the ones in charge of making essential decisions.


Once the business owner identifies the key person or persons, they can implement the clause in employees' contracts. Sometimes, key men can be operations managers, sales directors, heads of product development, and more.

Enterprises Create a Replacement Plan

The replacement plan is as essential as the key man clause because it's what specifies what happens if the responsible person is unavailable.


In the case of big companies, the replacement plan often mentions the person that will temporarily be in charge while executives find a permanent replacement.


Asides from the key man clause and the replacement specifications, insurance protect people in case they lose money due to issues with the previously mentioned contractual factors.


If someone, for example, invests money and the key man is the person who should make decisions about it but is unavailable, the client might lose money if someone else does that job. Insurance protects customers in these situations, and it's essential because it reassures them and guarantees that even if the key man cannot perform their job, they won't lose their assets.

Why a Financial Advisor Can Help

Considering that the key man clause is a contractual specification, people might wonder how a financial advisor could help with this process. Overall, their job is to guide people and support them when they're making decisions about their assets, so it's no surprise that they can suggest options when clients are signing a contract.


Financial advisors at The Kelley Financial Group are experienced in dealing with the key man clause and guiding clients through contractual signings alongside the client’s attorney. 


Since there are so many details in key man clauses, revising the contract with a financial advisor could be a good idea. This could allow the client to understand everything they're agreeing to. At the same time, their advisor might be able to suggest other alternatives that the person wouldn't have thought of before.


This material was prepared for The Kelley Financial Group’s use.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. The Kelley Financial Group and LPL Financial do not offer tax or legal advice or services. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

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