Key man insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business–the ones whose absence would sink the company. You need keyman insurance or buy sell agreement insurance on those people. This type of term life insurance policy works by a company purchasing the insurance, paying the premiums, and naming the company as the beneficiary. If that person unexpectedly dies, the company receives the insurance payoff. The purpose is to help the company survive the blow of losing the person who makes the business work.
Key Man Insurance Quotes
The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner. In a tragic situation, keyman life insurance gives the company some options other than immediate bankruptcy.
This type of insurance policy provides stability during the interim after loosing a person vital to the company to avoid from loss in production or revenues. If your company’s management or productivity ways heavily on one individual than a key man life insurance policy may be right for your business.
When the many day to day activities a company carries out such as providing their services, recruitment, paying the bills and so on, they often overlook important issues such as insurance specifically, key man insurance. Companies purchase this life insurance policy on the life of the company’s key executive. Also known as Key Man Insurance, Key Woman Insurance, or Business Life Insurance.
Who Needs Key Man Insurance?
Most firms or small businesses depend on a key person or few key employees to manage and run their business. Since these people are crucial to the success of a business, companies invest in Key man insurance, which is actually a life insurance on the business. The company is the beneficiary of the plan and therefore pays the insurance policy premiums. The payout provided from the death of those executives buy time to find a new person or to implement other strategies in order save the business.
If the key person unexpectedly dies, the company receives the insurance payoff. This coverage compensates for the death, which affect the success of the company. Key man insurance protects the company from drowning when they lose the executive who holds the business together. The company uses the insurance proceeds for expenses towards replacement of the person, to pay off debts, distribute money to investors, pay severance to employees or even close the business down in an orderly manner. Sometimes key man insurance does give companies better options than immediate bankruptcy.
A one-man company without any employees or executives to depend upon can do without key man insurance. Family is not included in key man insurance so if your family depends on your income then you should get yourself personal life insurance.
Every business operation feels displaced when it loses it’s key person especially when taking a decision on replacing him/ her with someone as competent as the former. In a small firm it is usually the founder who holds responsibility for keeping the books, managing employees, handling key customers and more. Without the captain of the ship is likely to lose direction or drown. There is no easy formula for determining the value of a key employee. Anticipated profit losses, replacement costs, and a compensation-multiple formula, are typical methods of estimating a loss. Good planning for a temporary back up helps the company to manage well till the key person is replaced. Shop for rates from several different life insurance agents and get them to sell you a key man policy. Take a term insurance instead of a whole or variable life, which require higher premiums and commissions.
Purchase A Key Person Policy
If yours is a business which you have just started and in the process of developing you’re probably so busy with operations that you haven’t had much time to consider buying key man insurance. Sooner or later you will realize that this too is an essential strategy to keep your business secure. If you haven’t, it’s time to contact your insurance agents right away and find out how much key man insurance your company needs before it is too late.