KEY PERSON INSURANCE
Protect your most
Valuable Asset
Key Person Insurance
Many businesses are often dependent on the expertise of just a few key employees who are responsible for the majority of profits and have some unique and hard to replace skill sets that are vital to the organization. A key person is an owner or employee that plays a very crucial role in day to day business operations and without them business will suffer a lot and may not even survive. A key employee may be responsible for managerial decisions, contributing to the sales force, or maintaining crucial customer relationships. Key person’s specialized skills, knowledge, experience and reputation are vital to the success of the business. If a key person will suffer life-threatening illnesses, disability or die, the business may be disrupted. The death or disability of that key person can have a severe financial impact on the growth or stability of the business. The loss of key person creates many disruptions which impact suppliers, customers, and other business stakeholders. To reduce this impact, businesses purchase Key Person Insurance to protect against the loss of these top employees.
The Risks Of Losing A Key Person
A key person is an owner or employee that plays a very crucial role in day to day business operations and is vital to the success of the business. Your business can be greatly hurt due to death or disability of the key person as follows:
- It will create a leadership void
- It can adversely affect company's financial health
- It may result in loss of confidence by creditors
- It will result in loss of production and ultimately loss in profits
- It may result in a sudden crash of business operations
- It will result in Loss of credit, orders, and a decline in customer service
- It may results in customers and employee turnover
- It may create uncertainty and fear among employees and investors
- It will generate a need for additional funds to recruit, hire and train a replacement
- It may create a threat to the survival of the business in some cases
Key person insurance helps your business recover from the loss or disability of someone who is invaluable to your company. Key Person Insurance is not a product but a concept which can be used by having the company purchase a life, critical illness and disability insurance policy on each key person in the organization. It is a corporate-owned insurance plan where the company pays the premiums and is the owner as well as the designated beneficiary of the policy. The company can use the tax-free insurance benefit, in whatever manner deemed fit to ensure the continuity and stability of the business operations. There are two main types of life insurance for key person insurance – term life insurance and permanent life insurance. Depending on your coverage needs, you can pick term life insurance or permanent life insurance as an important part of your business plan. You should keep the following factors in mind to determine the value of your key person.
- Is it going to impact your company's profits?
- For how long it is going to impact your profits?
- How much will be a cost to replace the person?
- Is it going to impact your company’s credit?
- How will this impact your clients?
- How this is going to impact your employees?
Benefits Of Key Person Insurance
You’ve worked hard to grow your business and make it a success, that’s why protecting it is important. Key person insurance is an important form of insurance for a business. It helps in protecting your business. Key Person Insurance is typically a contingency plan to carry on your business and should be considered as integral part of your overall business plan. The cost of key employee life insurance is often a small fraction of the death benefit, which is received tax-free. Let’s have a look at the benefits of key person insurance and how the value of these benefits far exceeds the cost of the life insurance.
- 1. Tax-Free Benefit: In the event of death of the key person the insurance Company will pay a tax-free lump sum payment known as death benefit.
- 2. Meet Immediate Cash Needs: Key person insurance will provide funds to meet the immediate cash needs of the business.
- 3. Replacement for Lost Revenue: Key person insurance benefits can be used to help a business replace lost revenue while searching for a replacement.
- 4. Repay Loans & Debts: Key person's insurance can help meet business expenses and repay remaining debts and outstanding business loans.
- 5. Cover Replacement Costs: It will cover the expenses of finding, recruiting and training a replacement employee for the key person's position in the event of his death or disability.
- 6. Provide Working Capital: Key person insurance provides immediate working capital required to manage day to day operations of the business.
- 7. Provide Business Continuity: It helps in business continuity in case of death or disability of the owner or the key person.
- 8. Helps in Business Survival: It will reassure creditors, customers and employees that the business will survive even if a key person has died.
- 9. Fund a Buyout Agreement: Key employee insurance can help to purchase the deceased or disabled person's share in the company.
- 10. Provide Financial Assistance: It can provide financial assistance to the family of the deceased or a disabled key employee.
Are you a business owner and are concerned about your company’s reliance on a key employee? Do you have a contingency plan to carry on the business if you become disabled or die? Don’t let the loss of a key person in your organization be the death of your business. Consider Key Person Insurance to protect against the loss of the key person. We know that each business has its own unique needs and we can help you choose the right plan that fits into your budget and meets your business needs perfectly. At Family Care Insurance, we work for you and not the insurance company. We will customize a cost effective plan to your specific business needs.
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