You have devoted your time, creativity, energy and finances to building a business. The last problem you need is the risk of losing everything if a key member of your team passes away. Key insurance is a certain type of life insurance that protects a company in this situation.
What is Key Person Insurance?
Key person insurance pays out death benefits to a company when a member of your company's team dies. This type of policy should be in place to protect against significant financial losses associated with the loss of one of the owners, partners or employees. This type of insurance can be a lifesaver in specific situations:
- If your occupational health is based on the name, deeds, reputation or skills of a particular person, key person insurance allows you to terminate the business or do so through the transition after the loss of an owner, partner or key person.
- If your company's profitability is based on the actions of your top salesman, developer, technician or other employee, your company could suffer extreme financial losses if that person dies.
- If your company is a partnership and a partner dies, key person insurance provides the finances to buy the shares in the company, which are usually transferred to the deceased's spouse or children.
How Does Key Person Insurance Work?
Key insurance is a life insurance paid by the business and which pays the death benefit to the company after the death of the said individual. The company owns the policy. The key person in the insurance must have agreed in writing before you can buy key person insurance. The death benefit is paid to the business. It can be used to repurchase corporate shares owned by the deceased, pay the company's debt or provide a financial cushion to cover financial losses.
Should we buy key person insurance? or competence of a particular individual, it is important that you have key person insurance. Many smaller companies depend on the skills of one or two individuals. If such a person dies suddenly, your business may not move forward or may need time to find a replacement. The death benefit paid to the business can enable it to survive the transition, pay critical staff and cover bills.
Partnership and Key Person Insurance
A partnership can pose specific problems when a partner dies. Shareholding can be transferred to the spouse, who may not be the perfect partner for your business. Key person insurance can allow you to buy the shares and avoid problems.
How much key person insurance do you need?
To determine the amount of key personal insurance that your company should have, it is recommended that you meet with a qualified insurance agent to review your situation. An assessment of how a partner, owner or key employee affects your company health will be required, along with the cost of the policy itself and the level of coverage that fits your budget.
Let our agency help
You may want to invest in disability insurance or buy a key person insurance that covers both death and disability. If you are considering key personal insurance, our qualified, experienced agent can help you find the right policy for your budget to protect your business.