Key Person Insurance is also known as business life insurance and keyman insurance. The main purpose of buying keyman coverage is to offer financial protection and an added element of security to a business’s operations in case a key individual was to pass away.
Here, we’ll explain who needs to buy key person insurance, what it is, and how it works.
If your company is looking for investors or finance, you might have been asked to buy key person insurance as part of the terms of any potential deal. However, this isn’t the only time that buying keyman insurance makes sense; there are many other situations where this should be considered.
The purpose of buying keyman insurance is to enable the business to survive should a key person who is invaluable to the business die. The proceeds from the insurance payout can be used to cover expenses until a replacement is found. It can also contribute to other things, such as paying debts, distributing money to any company investors, paying severance or even closing the business down. In tragic circumstances, this type of insurance can support a business when and where it needs it most.
If your business employs just one person as the owner and operator and is considered to be a sole proprietorship with no employees who depend on it, then it isn’t essential to buy this type of coverage. You can still purchase this coverage, but the need is not as great.
there is no pre-set formulation that will determine the value of a key person. You could begin by considering the financial impact that a person’s death could have on your company.
For instance, if you are the sole owner of a business and you are buying keyman insurance for yourself, you will want to make sure you have enough coverage to pay off any company debts so that your business can be closed quickly and with the least possible amount of stress to your loved ones. But, if you own a larger company and have decided to buy key person coverage for a specific member of your team, you will need to consider the amount of income your business may lose if that person were no longer there.
Talking directly to an expert commercial insurance agent can really help while you are crunching these numbers, they can often answer any questions in person or over the phone, and they have a greater knowledge of the insurance market, and specifically, of the types, if considerations you need to think about before you buy a keyman insurance policy online.
The structure of your individual policy is connected to the legal structure of your business. Usually, it is the business that pays the premiums for the key person insurance policy, and for this reason, it is owned by the business. The key person who is named on the policy will need to provide written consent to gives the company permission to take out the policy.