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There are many types of insurance available to business owners in today’s world. One of them that you may not hear so much about is called Key Person Life Insurance (aka key man insurance or key employee insurance). Today we’d like to share what is possible with this type of life insurance and how it can be used to protect your business.
Key person life insurance is life insurance set up to cover any employee, partner, or proprietor who is important, essential, and valuable to the company’s ongoing operation. In this situation, the beneficiary under the policy is the business. With key person life insurance, the business purchases a policy covering ‘key person(s),’ pays the premiums, and receives the insurance payout if a key person(s) were to pass away prematurely.
As many of our readers understand, coverage like this is important because the success of a company can depend on one or more key contributors. The idea behind key person life insurance is that even in the event that a key person would no longer be able to lead the business or provide key intellectual ideas, the business would have financial resources to continue operations.
There are two important things to recognize about key person life insurance. The first is that if your company is a sole proprietorship, meaning that you employ yourself and not other employees (or others who depend on it), key person life insurance may not be appropriate for you. The second is that key person life insurance should not be confused with personal life insurance. These two policies have very different purposes in the event of loss: the first having to do with business finances and the second to cover family or personal finances. Should you find yourself as a ‘key person’ at your company, make sure that the personal side of your insurance is taken into account.
Key person life insurance can be used by the business for any number of expenses that come up: expenses involved as the company searches for a replacement, pays off debts, pays severance to employees, distributes money to investors, and potentially closes the business if necessary.
If your business is considering key person life insurance, key person disability income insurance could be another policy worthy of consideration. This type of policy would provide income in the event of a key person’s disability and would cover losses as the key employee takes the time needed for rehabilitation. It would also cover the search for a replacement and training of that replacement if needed.
Business overhead expense (BOE) disability insurance, also known as Business Expense Insurance, pays the insured's business overhead expenses if he or she becomes disabled. A BOE policy pays a monthly benefit based on actual expenses, not anticipated profits, and may be another potential consideration for your business.
For more information on key person life insurance, contact your local United Insurance agent to learn what might best suit your business and its needs.