Life Insurance Advice: Why You Need Key Man Insurance
When you're running your own business, much of the responsibility lies on the shoulders of yourself and a few key individuals. In fact, the entire success or failure of your company can be in the hands of a small, essential team.
Should something happen to one of these VIP’s, what would happen to your business? Without their unique skillset or reputation, would your business simply fold? These concerning questions are exactly why you should consider key man insurance.
What Is Key Man Insurance?
Key man, or key person, policies, also called "corporate-owned life insurance," are a type of life insurance policy purchased by businesses to insure certain employees. These employees are considered “Key” and are an essential part of the business function, whose death would cost a company significantly.
These key employees might be the business owner, top executives, highly visible individuals, or those uniquely knowledgeable or skilled.
Key man life insurance is paid for by, and collected by, the company that employs the key individuals. In the case of their untimely death, the company would use the policy proceeds to recover from losses until a suitable replacement was found.
How Much Should My Policy Cover?
To determine this, ask yourself how long it would take to replace one of your key employees. Your insurance agent can go over different coverage options with you and weigh that against how much money it would take to cover business expenses during reorientation after a sudden death or illness.
Coverage ranges from $250,000 to $1 million, on average. Some businesses calculate it based on the amount they would lose with the covered employee, while others estimate it based on a multiplication of that employee's salary.
Do I Need a Key Man Policy?
If you aren't sure whether you need a key man policy or not, consider your business structure carefully. Do you have a plan of succession, should you or another vital member of your team die?
Are there key employees who are vital to the survival of your business? A product developer, top sales performer, or master of your unique technology demands, for instance? How long did it take to find this person, and how quickly/easily could you replace them?
Depending on your preparedness and the role of your key employees, you could suffer months of setbacks and profits loss while picking up the pieces. That's where key man life insurance comes in.
In other cases, you may be required to purchase key man coverage. Sometimes investors require this type of coverage to be in place before investing in order to protect themselves and their investment dollars. These insurance options are an alternative to, in some cases, immediate bankruptcy for the handicapped business.
Cover All Your Bases
No one plans to die early, but accidents do happen. While losing an important member of your business is a tragedy, it doesn't have to spell the bankruptcy of your business, as well. Why worry about what might happen when a key man insurance policy can protect your assets and give you peace of mind?
Contact your local Give Your Kid A Million agency partner today for a quote. An independent insurance agent can answer your questions about a key man insurance policy, help you determine the appropriate amount of coverage and give you quotes from multiple insurance companies so that you can compare the different options and rates. Click the “Get A Quote” button on the right side of the page to get your free quote today.