If you own a small or medium-sized business, key man insurance is very important because your success or failure often depends on a few key people who drive your company’s revenue. The loss of one of these key people due to death or disability can devastate your business and ultimately lead to its downfall. Key person insurance is designed to protect your business from the threat of one of these losses and will help provide the necessary funds to continue successful operations.
What is Key Man insurance?
Key insurance is simply life insurance and/or disability insurance protection that you purchase for your key people to protect your business in the event of death or eternal disability. Key employee or key executive insurance will give you peace of mind knowing that your business can continue without interruption if one of your key people fails. If death or disability strikes a top executive or salesperson, key man insurance could be the difference between your business staying afloat or having to close its doors!
Key person life and disability insurance protects your business, not the key person. Most key man insurance policies are purchased by the company, with the company being the beneficiary and owner of the policy. With key insurance in force, if a key employee dies or becomes disabled, the insurance proceeds are payable to your business and can be used for any purpose. Common uses of key insurance policy proceeds include covering expenses associated with finding a capable replacement and providing needed cash flow for ongoing business concerns.
Does your company need key man insurance?
If your business would be significantly affected (lost revenue or customers) if one or more of your key employees were to become disabled or die, you should consider purchasing key man insurance. Businesses of all sizes buy insurance, but it’s especially important for smaller businesses that have considerable exposure if a key man is lost.
Key insurance is also purchased on the life of business owners to efficiently plan for business succession. Key’s life and disability insurance is a perfect tool to purchase the interest of the family of the deceased or disabled owner. In the event of death or disability, the company can redeem the company’s outstanding shares from its estate by effectively paying fair market value to heirs while retaining current ownership. Many successful businesses have life and disability financed buy-sell agreements specifically for this purpose.
Buy key man insurance
Purchasing key man insurance is relatively easy and, in most cases, extremely affordable. The process is the same as buying individual life and/or disability insurance. A simple key person life insurance application is completed and submitted to the insurance company. A routine insurance exam or “mini physical” is required, which is paid for by the insurance company, along with certain financial information about the business. The underwriting process takes 3-6 weeks and once approved, a policy is issued. Finally, the payment of the first premium is all that is required to make the coverage effective.