Identifying Key Personnel — Who Qualifies as a Key Person

The test: financial impact

A key person is someone whose death would cause the business a real financial loss. That is the central test. It follows from the purpose of the cover, which is to compensate the business, and from the need for an insurable interest: without a financial loss there is nothing to insure.

Three questions help in applying it. How much of the revenue depends on this person? What knowledge or relationships does the person hold that the business does not hold without them? How hard, slow and costly would it be to find a replacement?

What does not decide it

Job title, seniority, salary and length of service do not decide the matter. A specialist with rare skills may be a key person, while a long-serving employee in a role that is easily filled is not, however valued that employee is.

Founders, directors and partners are common examples, because the business often rests on them. But they are examples, not a closed list, and a senior title by itself proves nothing if the person's work is routine and could be handed to someone else.

What the insurer asks for

As part of its own underwriting, an insurer commonly asks the business to show two things: that it has an insurable interest in the person's life, and that the proposal has been properly authorised by the business.

A company acts through its board, so its decision is recorded in a board resolution. A partnership firm relies on authority under its partnership deed. These are each insurer's own underwriting requirements. They are not an approval given by IRDAI, and insurers differ in the papers they call for.

Key points

• A key person is someone whose death would cause the business a real financial loss.
• The loss may come from revenue the person brings in, knowledge or relationships they hold, or the difficulty of replacing them.
• Title, seniority, salary and length of service do not decide it.
• Founders, directors and partners are common examples, not the only ones.
• Insurers commonly ask for proof of insurable interest and of the business's authority, such as a board resolution or authority under the partnership deed.
• These are insurers' own underwriting requirements, not IRDAI approvals.

Common misunderstandings

• Seniority is not the test: a mid-level specialist with rare expertise may qualify where a senior manager with routine duties does not.
• Long service does not make someone a key person: what matters is the financial loss the business would suffer.
• A board resolution is not a regulatory approval: it shows that the company itself authorised the proposal, as the insurer's underwriting requires.
• Do not assume a fixed list of eligible designations: each case turns on the person's actual contribution and the insurer's assessment.

Questions people ask