There is no lawful definition for or description of key person Insurance (aka key man insurance) however, we might be able to define this type of insurance as a business insurance policy designed to protect that business from potential financial losses if an important member (or key employee) should become deceased or disabled.
Why Take Out A Key Person Insurance Policy?
A key employee is considered one who is responsible for the majority of the profits or who has a skill set that would be hard to replace should anything happen to that key employee.
There are several things that can happen when a business loses a key person within their organization:
- The business is disrupted as the owners try to access the situation and determine a plan of action
- Sometimes, there is a drop in sales as the owners temporarily shift their focus
- Sales that have already been made may be undelivered or may be questioned and clients may go somewhere else
- Creditors may become concerned and force the company to liquidate assets to cover unpaid loans
- The business must try and replace the skills that were lost
Fortunately, the possibility of death or disability of a key employee is something that can be insured with this type of insurance.
What Are the Key Benefits of this Insurance?
Here are some of the most important benefits of a key person life insurance policy. It will help:
- Reduce the financial burden to family and heirs
- Assist heirs in meeting estate and tax obligations
- Cover the expense of hiring a comparable replacement
- Offer assurance to clients and creditors
- Keep the business in successful operation
- Ensure the family business is not compromised
Top of Insurance Policies
Key man insurance can either be:
- A Life insurance policy
- Or a critical illness insurance policy
– that would not extend beyond the period of the key person’s usefulness to the business
This insurance is used as part of the business succession plan or for the protection of the business.
A Key person insurance policy is owned by the business and the goal is for the benefit to compensate the business for losses incurred should a key person pass away or become permanently disabled.
An additional benefit for private companies is that the life insurance proceeds can be paid out as a tax-free dividend to the owners once the business has recovered.
Ask Us for an Insurance Quote
Let Benefit Strategies show you how you and your business can benefit from key person insurance.
For more information or to inquire about our key man insurance, including life insurance and critical illness insurance plans, or if you have any unanswered questions you’d like to ask, please get in touch with one of our Benefit Strategies insurance brokers.