We all have a boss or coworker who our company wouldn’t be the same without. Not only would the company not be the same, but it might not even function at all. From the CEO to the accountants, from the small business owner to a talented manager, there are people who are more important to a company than anyone realizes.
What would happen if your company lost these key people because of injury, disability, or death? Would the company fold, or would there be a transition that would save the company and the employees still working there? Investing in key person life insurance, also called key man insurance, could help your company if a key person or key people were suddenly unable to continue to work.
If you are part of a small business that revolves around an owner or creator, you may want to invest in key person insurance. If you are part of a larger company or one that has diversified into different fields, key person insurance could ensure that every person and venture is protected in case of an unexpected event. For example, banks have key people who are important not only because of their position but also because of their experience in the industry. If your business has diversified into many fields, like media or entertainment companies, you may also need key man insurance, as a key person is integral to the continued success of your business.
Who Does Key Person Insurance Protect?
In your business, whether it be small or large, key people keep things functioning smoothly, and your company needs to be protected from the consequences of losing them. Key person insurance covers a specific person in your company, like the owner or CEO. For small businesses, the key person may be the owner, since they keep everything running and may have started the business themselves. Key people in any business or industry are those who are crucial to the company: people who your business would not function properly without.
Your company needs key person insurance in the event that person dies suddenly or is incapacitated and unable to do their job. A key man policy can be:
- A standard life insurance policy, which covers a person if they die during the time period specified in their insurance policy.
- Total and permanent disability insurance (TPD insurance), which covers disabilities or injuries that may occur to an individual.
- Trauma insurance, which also covers injuries or disabilities that may occur because of an unexpected accident.
Key person insurance policies cover the untimely death, disability or sudden departure of a key person, but they can also provide financial support while the person is recovering from an illness or injury and is unable to work in their previous capacity. The policy term is for the specified time period or until the person being insured is no longer with the company in the capacity of a key person.
It can be difficult to put a monetary value on a person and the work they do for your company, so these policies are often for a specific monetary value that is agreed upon in advance when the policy is purchased.
Why Do Businesses Need Key Person Life Insurance?
The financial ramifications of losing an important member and leader of your business can be extreme. Without a business owner or key leaders, your company risks folding or going in a direction that is detrimental to its continued success. Key man insurance ensures that your company will be financially protected in the wake of a key person’s death or injury in an accident, so you can do what it takes in order to recover and move forward. You will be better able to cover situations like hiring or training a replacement. You can also make up for loss of profits or any debt that you may incur while your company recovers.
The amount of the policy is usually paid directly to your business so it can be used to cover the financial losses incurred by the death or disability of a key person. Key man life insurance is necessary even if your business plans to shut its doors after the loss of a key person; the money can be used to take care of closing costs, investor payoffs, and severance pay for employees.
What Does a Key Man Policy Cover?
A key man insurance policy can cover an extended period after a key person is incapacitated and unable to work or dies unexpectedly. The policy can be used to provide temporary staff for your company or to hire and train a replacement. The key man policy can also be used to make up for a temporary loss of profits due to the loss of an important staff member.
A key person insurance policy can also be used as a guarantee for business loans. Additionally, the policy can be put toward shareholdings or partnership interests. For taxation purposes, the policy can be used to claim a deduction on business taxes under the category of business expenses.
Key Person Insurance Policies for Small Businesses
Small businesses often have the most to lose when it comes to key staff members. If your small business loses its leader or another important person, there’s a chance that the company will close its doors for good. These irreplaceable members of your business are the most important to take out key man insurance policies on.
However, if you are a business owner who owns and operates your own business all by yourself, you won’t need key person insurance. In this case, your regular life insurance policy will be enough to cover you in case anything should happen to you unexpectedly. The loss of income from your business in the event of your death or protracted inability to work would affect you and your family, not any employees or shareholders.
Finding Key Person Insurance
For a key man insurance quote, contact a Trusted Choice agent. These agents can help you determine whether a key man insurance policy would be right for your business. They operate locally and can compare and contrast different insurance quotes and work to find the best insurance policy for you. Contact an independent agent today to find out more about key man insurance for your business.