Know the Basic Facts about Key Person Insurance
Know the Basic Facts about Key Person Insurance
Over the past several years, a new type of business insurance policy has become very popular. This is the key person insurance. This policy provides benefits for the company if it loses its key person due to death or illness.
Do you really need keyman insurance? If you have a key man that performs crucial roles for the success of the business, then this type of business insurance is essential. The insurance policy is your guarantee that the financial position and profitability of the business will not be affected by a sudden dislocation.
You have to understand that all companies have at least one key man who has a great impact on operations, continuity, and profitability. Losing such person could be disastrous and taking out keyman insurance makes perfect business sense.
In some cases, new investors or a lender may require you to purchase this kind of insurance before they pour additional capital to your business. The goal of the lender or investor is to protect their capital investments in case your business flounders due to the loss of a key employee. In this case, the beneficiary is the lender or the new investors.
How Key Person Insurance Works?
Key person insurance would be similar to any other type of life insurance policy. Your company, through its board of directors, may pass a resolution approving the purchase of the insurance. If you have a small business, then you as the owner could directly facilitate the purchase.
You have to identify a specific person who serves a key role for your business. In most cases, the key man should affirm the purchase of insurance on his life or health. After this, you have to determine how much protection you need.
The premium of keyman insurance shall be paid by the company. Your company is also the recipient of the benefits. Depending on your decision or the decision of the board, you may purchase this type of business insurance as a life policy or a term life policy. Obviously, key person insurance would be cheaper. It could also be transferred to another key man in case the primary insured person will retire.
The Value of Key Person Insurance
One of the biggest advantages that you can get from this type of insurance is business security. By providing cover for you company, big financial setbacks and loss of profits can be avoided. This insurance also enhances the confidence of your investors which is generally beneficial for the long term viability of the business.
In terms of financial rewards, the value of keyman insurance benefits has a variety of uses. First, the money can be used to compensate the company for the loss of sales due to unexpected incapacity of a key person.
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