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Article originally posted on www.insuranceneighbor.com(opens in new tab)
Key person insurance can help protect your business in the same way that life insurance helps protect your family. The most valuable asset of any business is its people, and a company can become dependent on certain key persons for its success. If you have executives or employees who are critical to your business, you need key person insurance as part of your business insurance package. Our experienced agents can help ensure that you have the coverage you need for the people who are key to your company.
How Does Key Person Insurance Work?
Also known as key man insurance, key person insurance is a type of life insurance policy that provides death benefits to a business upon the death of a covered owner or employee. The company pays the premiums and is the owner and beneficiary of the policy. The key person has no active participation in the policy but must consent in writing for the company to purchase this insurance. Replacing a key person in a business takes time and money, and the business could lose clients and income during the transition. Key person death benefits are meant to help cover financial losses that can result from the death of a key person.
In What Circumstances Do You Need Key Person Insurance?
You may consider key person insurance:
- If the reputation and financial viability of your business are critically linked to a key employee’s name, reputation, or skills, and the death of that employee would have a devastating effect on the business.
- If the death of a top salesperson or other key employee could threaten the company financially.
- In a partnership in which each partner wants to buy out the shares of the other partner in the event that he or she dies unexpectedly.
- To provide business loan collateral for a financial institution or creditor that requires the option of a lien on a key person policy.
For What Types Of Employees Should Your Business Have A Key Person Policy?
Every successful business has owners or employees without whom the company would not be the same, or may not even function. These key persons could be anyone from an owner or CEO to an accountant or manager. Consider a key person life insurance policy for any person who is crucial to your company — any owner, partner, or employee whose sudden death would significantly impact the company’s operations and viability.
What Can Key Person Insurance Do For Your Company?
In a key person policy, death benefits are paid to the business if an insured key person dies. These benefits can help cover financial losses to the company that occur as a result of the death and help ensure the continuity of the business. Benefits can be used to recruit and develop a replacement for the deceased key employee. The cash value of the policy may be available to your business through a loan or withdrawal if needed. Taking out key person policies on top employees affirms their value to the company and helps strengthen the relationship.Filed Under: Business Insurance | Tagged With: Business Insurance, Key Person Insurance