Key Man Life Insurance
If your business relies on one or two key people, key man life insurance is an important business consideration. Key man life insurance helps companies and their employees survive should one or more of the insured persons die.
Who Should Carry Key Man (or Key Woman) Life Insurance?
Key man life insurance is not just for small companies. Companies of all sizes purchase key man life insurance when the company is owned or managed by a few men and women upon whom the company depends for its existence. Key man life insurance can be purchased for any person who makes a key significant contribution to a company; it is not restricted to the founder, CEO, or president.
Key man life insurance policies can be written to cover a lead salesperson. Clients often get used to dealing with one person and refuse to do business with anyone else. And sometimes a company relies on an employee's personal relationships with clients for the majority of its revenue or for significant discounts from its vendors.
How Key Man Insurance Works
Key man life insurance is a type of term insurance. That means that a premium is paid each term (monthly, quarterly, or annually) and provides protection during that term. The insurance policy does not grow in value the longer it is in force as whole life policies do.
With key man life insurance, the company pays the premiums and is the beneficiary in the event of death of the insured.
How Benefits are Applied in a Key Man Life Insurance Policy
The payout is generally either used to keep the company afloat while finding a replacement for the key person, or to make it easier to liquidate the company, pay off debts, and distribute the proceeds among shareholders (often the owner's family). Proceeds from the policy can also be used to provide income for employees while they search for another job should the company be liquidated.
Do You Really Need Key Man Life Insurance for Your Company?
In privately held companies, the bonds of loyalty between the owner and employees are often very strong. There is a family feeling that goes both ways with the company owner feeling responsible for the livelihood of the employees, and the employees feeling responsible for the success of the company.
Although employees are generally unaware of it, key man life insurance is one way a company can protect employees and reward them for their loyalty while serving the company's best interest. So, whether the key player is you, one of your star salespersons, or an office manager, you owe it to yourself, your business, your family, and your employees to insure the people on whom your business depends.
How Key Man Life Insurance Fits your Crisis Management and Succession Plan
Most people don't really like to think about worst case scenarios. But as the adage says, "failing to plan is planning to fail." Don't wait until a crisis is upon your company. Talk with your insurance agent for more information about how key man life insurance fits in to your overall crisis management and succession plan.
