Key Person Insurance Can Help Protect Your Business.
Key person insurance, also called keyman insurance, is an important form of business insurance.
In business, every employee is important, but some employees are essential. Whether it’s their reputation, name, skillset, or clients they bring into the company, the loss of certain employees can have a devastating impact on an organization.
How Does a Key Person Life Insurance Policy Work?
Key person insurance is a type of life insurance policy designed to pay a business upon the death of the insured, as opposed to that person’s beneficiaries. That “key person” could be a company owner or partner, or it could be an indispensable employee, such as someone with highly specialized knowledge or skills.
A key employee could also be the person who brings in an outsized portion of the firm’s revenue. These policies are generally reserved for employees whose absence will be a financial burden to the business and will be difficult and costly to replace.
The life insurance policy provides funds that can help ensure business continuity if a key employee dies or becomes disabled, provided the policy has an additional disability rider.
Ownership
The business owns the policy, but the employee has to consent.
Life insurance policies are typically owned by the insured or a family member. In this case, the business owns the policy and pays the premiums, so it is a form of company-owned life insurance, or COLI.
When the insured dies or becomes disabled, the business serves as the beneficiary and receives the death (or disability) benefit. However, before a COLI policy can be taken out on a key employee, life insurance companies require the written consent of the person being insured.
For many businesses, the key people in the company are the company’s greatest strength, and losing them could be very costly. Discover how Key Person Insurance coverage can help safeguard your business success.
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