Why Businesses in the GCC Need Key Person Insurance

Key person insurance in the GCC exists for a problem most founders recognise but rarely write down: a handful of people carry a disproportionate share of the company’s revenue, relationships and know-how. If one of them died or became seriously ill, the business would not close overnight, but it could lose clients, credit lines and momentum faster than it could rebuild them.

A key person policy is owned by the company, insures the life (and sometimes the health) of that individual, and pays the company, not the person’s family. The proceeds give the business cash to absorb the shock while it reorganises. This article explains how that works for businesses in the UAE, Saudi Arabia, the wider Gulf and Lebanon; it is general guidance rather than advice for your company.

Who counts as a key person in a GCC business?

Not only the founder. It may be the general manager whose signature sits on the bank mandates, the sales director who holds the distributor or government relationships, or the engineer who is the only one who truly understands a core system. In family-run companies across the region, key people are often relatives whose role has never been formally defined. A useful test is to ask what would stop, who would phone, and how long it would take before someone else could do the job properly if this person were suddenly gone.

What does a key person payout actually fund?

Because the money belongs to the company, it can be directed wherever the damage is greatest. Typical uses include:

• Recruitment and handover: search fees, relocation for a replacement hire and the overlap while knowledge is rebuilt.
• Lost profit: bridging the dip in revenue while clients are reassured or replaced.
• Lender confidence: reducing facilities if a bank reviews its exposure after losing a guarantor or senior manager.
• Working capital: keeping suppliers and payroll on schedule during the disruption.

How do you work out the right sum assured?

Insurers want the amount to be justifiable rather than arbitrary. Common approaches look at the person’s contribution to profit, the cost and time of replacing them, or the value of company debt they personally guarantee. Which method an insurer accepts, and the financial evidence it asks for, varies by insurer. Put the reasoning on paper: a short board note explaining why the person is key and how long recovery would realistically take makes underwriting smoother and tells future directors why the policy exists. The insured person must also complete medical and lifestyle questions honestly, since any claim is assessed on the policy wording and the information disclosed.

Which company in the group should own the policy?

Many regional groups mix structures: a free zone company for holding or trading, a mainland entity for local contracts, perhaps a related business in Lebanon or another Gulf state. The policy should be owned by, and pay out to, the entity that would actually suffer the loss, otherwise the money may land somewhere it cannot easily be used. The accounting and tax treatment of premiums and proceeds also depends on structure and jurisdiction, so bring your accountant into the discussion before cover is placed.

How is key person cover different from group life?

The three are easily confused. Group life is an employee benefit that pays the employee’s family. Key person cover is a company asset that pays the business. Partnership or shareholder protection funds the purchase of a deceased owner’s shares under a buy-sell agreement. A founder can sensibly sit under all three for different reasons, and it pays to design them together so that amounts and beneficiaries make sense as a set rather than overlapping or leaving holes.

When should a business review its key person cover?

The people who matter change as a company grows. Review the arrangement when a new senior hire takes over a major client portfolio, when a founder steps back, when bank facilities are renegotiated, or when the business opens in a new country. A policy that still insures someone who left two years ago, while the new commercial director is uninsured, protects nobody.

If you can already name the two or three people your business depends on, you have the start of a key person review. Our advisors can help you document the case, size the cover and compare insurers across the region in a complimentary first meeting.

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• Keymen insurance
• Insurance Broker Across the GCC

Related reading

• Insurance Planning for Small Businesses in the GCC — Small GCC businesses should prioritise risks that threaten survival: key people, partner exits, and basic liability exposures.
• Partnership Insurance: Protecting Business Partners — Partnership insurance supports continuity when a partner dies or exits, often funding a buy-out aligned with a shareholders’ agreement.
• Group Life Insurance for Companies: How It Works — Group life is usually an employer-sponsored benefit paying a multiple of salary on death of an eligible employee.

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