Document background
The Key Man Agreement serves as a critical risk management tool for Canadian businesses where certain individuals are instrumental to the company's success. This document becomes relevant when a business identifies employees whose sudden departure (due to death, disability, or other circumstances) would cause significant financial strain or operational disruption. The agreement typically details the procurement and maintenance of life insurance policies, specifies how proceeds will be used, and outlines obligations of all parties. It must comply with Canadian federal laws including the Income Tax Act and provincial insurance regulations. Key Man Agreements are particularly important for businesses with specialized leadership, unique technical expertise, or significant client relationships concentrated in specific individuals. The document helps ensure business continuity and provides financial protection by establishing clear procedures for managing the impact of losing key personnel.
