Does Your Business Need Essential Employee Insurance?

(Because there are some employees you just can’t afford to lose.)
Christine Lacagnina Written by Christine Lacagnina
Christine Lacagnina
Written by Christine Lacagnina

Christine Lacagnina has written thousands of insurance-based articles for by authoring consumable, understandable content.

paul martin Reviewed by Paul Martin
paul martin
Reviewed by Paul Martin

Paul Martin is the Director of Education and Development for Myron Steves, one of the largest, most respected insurance wholesalers in the southern U.S.

Essential employee insurance

Everyone loves an all-star employee. Workers who are irreplaceable because of their productivity, special knowledge, or skill set are hard to come by. Some companies value these employees so much that they’re motivated to take out an insurance policy to protect against losing them. If the loss of a real pro on your team would seriously hurt your business, you might want to check out essential employee coverage.

What Is Essential Employee Insurance?

Also known as key man or key person insurance, essential employee coverage is a special type of life insurance policy designed to cover highly valued employees in case they die or leave a company temporarily. When a company stands to take a huge financial hit in their key worker’s absence, essential employee coverage can help cushion the blow.

Workers may be essential to a company for several reasons:

  • They generate a huge profit: For example, top salespeople who outperform their comrades aren’t always easy to replace.
  • They have exceptional knowledge: Sometimes what’s irreplaceable about a worker is their special knowledge related to their profession. Exceptionally knowledgeable employees may turn huge profits for the company, or just be invaluable in their ability to keep processes afloat.
  • They possess a rare skill set: An employee who can accomplish various tasks that  their coworkers can’t is often a highly valuable asset to a team. Rare skill sets can’t always be replaced through a job posting on Craigslist.
  • They are a business partner: Business partners can’t always be replaced, especially if they help build a company from the ground up. Should a business partner die, their next of kin, who would be likely to inherit their share and position, may not suffice as a working replacement for them.

Whatever the reason for an employee’s value, if their absence would negatively impact the business, key man coverage is crucial. Policies can be taken out for a single employee or several. Coverage may also be extended to workers who aren’t directly employed by your company, but are still an asset to your team.

What Does Essential Employee Insurance Cover?

Basically, essential employee coverage takes care of the financial hit in the event of a permanent or temporary loss of a key worker. Policies are set up like other forms of life insurance and pay out a lump sum, also known as a benefit, to the employer upon the loss of the covered employee.

Common coverages provided by essential employee insurance include:

  • Death benefits: If the highly valued employee dies, the policy will pay out a lump sum (dictated by the specific policy) to their employer. The employer essentially acts as the employee’s beneficiary, in this case.
  • Disability or other health crisis: If a covered employee is forced out of work due to a disability or other severe health issue, a benefit can be paid out to the employer upon the employee’s extended absence or resignation.
  • Stock or ownership buyouts: If a covered employee was a partner or shareholder in a business, coverage  can be used to fund the buy-out of their stock or share upon their death. Surviving next of kin who inherit the deceased employee’s stock or share may not benefit the company, but key person coverage can ideally prevent these situations by transferring their portion back into the company.
  • Loss of business: If your business is forced to temporarily close in the event of the key employee’s death, coverage can reimburse for lost revenue.
  • Training of successors: If a key person’s death requires a replacement to be trained, coverage can fund the costs of this process.

Actually, all areas where the loss of an essential employee would cause any financial harm can be covered through key man policies. Keep in mind that essential employee insurance is only set up to cover the employer (i.e., the policyholder)—the employee’s family doesn’t receive any benefits.

Who Needs Essential Employee Insurance?

Pretty much any company that has an employee (or several employees) who are so valuable that their loss would totally tank the entire operation. We’ll take a closer look at a few specific examples of who might need this coverage.

The following companies might need essential employee insurance:

  • Retailers with a top-performing salesperson
  • Organizations or agencies with key executives
  • Small businesses with one or two partners
  • Employers with an irreplaceable group of workers
  • Companies with employees who are stockholders

The loss of a key employee can be felt in many ways by a company. To keep a business’s financial stability intact in the event of the death or disability of their key person or key people, essential employee insurance is crucial.

How Much Does Essential Employee Insurance Cost?

Well, that depends—on quite a few things. Just like other forms of life insurance policies, there are several criteria that determine premium costs. Common coverage options range from $100,000 to $1 million or more.

Coverage costs may depend on the following:

  • The age and current health of the insured employee(s)
  • The health history of the insured employee(s)
  • The profession of the insured employee(s)
  • The location of the employer
  • The annual wages of the insured employee(s)
  • The profits turned by the insured employee(s)
  • The value of the share or stock owned by the insured employee(s)

The more likely it is that your company will lose the key employee(s), the more expensive your premium is likely to be. Premiums may also be more costly for employees who earn higher wages or turn larger profits, but having coverage could prove to be more than worth the extra cost.

How Do I Get Essential Employee Insurance?

For the more obscure or less common types of insurance coverage out there, you might not be able to find what you’re looking for just anywhere. While our independent insurance agents may not be able to provide you with this kind of coverage directly, we’ll happily provide a list of agents in your neighborhood who have access to multiple insurance companies. You’ll walk away with the most options to find the absolute best coverage for your insurance needs.

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