In many cases, and especially in small to mid-size businesses, success can depend upon a few top people that possess unique talents, skills and expertise. These key employees are critical to the long term performance of your company. Losing one of these essential people due to a death or disability can have a damaging effect on your business. Key man insurance will protect you and your organization from the devastating loss of a vital contributor.
What is Key Man insurance?
Key man insurance commonly referred to as key person insurance or key employee insurance is designed to protect company in the case of an untimely death or disability of a top salesperson, executive or business owner. Key man insurance provides peace of mind to business owners and shareholders alike knowing that the business can continue operations without major disruption in the event of the loss of a key employee. If death or disability strikes your company, key person insurance may be the difference between the company’s demise and its ultimate success.
Key person insurance policies are designed to protect the business not the key employee. If a key employee dies or is disabled, the policy proceeds can be used by the company for any purpose. Normally, businesses will use the funds received from a key man policy to cover expenses associated with finding capable replacements or to cover short term revenue deficits.
How does Key Man Insurance work?
Key man insurance is simply life and/or disability insurance on your key executive, salesperson or anyone that brings in a large percentage of the company’s revenue. With key man insurance, the company buys a life or disability policy on the life of the key person. The company is the policy owner and the beneficiary and pays the premiums. With key man life insurance, if the key person dies, the company will receive the policy proceeds and can use them to go out and hire a capable replacement, pay off debt, buy-out an owner or use the cash to continue operations until the company can be sold for its fair market value.
With key man disability insurance, if the key person becomes totally disabled, the company will receive a monthly cash benefit to offset hiring a replacement. Generally speaking, the benefits are payable for a short period of time, usually between 6-24 months depending upon the policy. Additionally, key man disability insurance can provide a lump-sum cash benefit at the end of the monthly benefit period.
Do You Need Key Man Insurance?
If your business would be dramatically impacted by the loss of one or more of your top people, key man insurance can effectively protect against this risk and you should consider purchasing key man insurance policies to protect your company. To determine if you really need key man life or disability insurance ask yourself the following questions:
- Can your business continue to run effectively if you lose a key person?
- Would there be any cash strain on your company if your top salesperson becomes disabled or dies?
- Do you have a contingency plan for ownership if a partner or owner of the company is lost?
If any of your answers to the above questions are “NO”, then you should strongly consider key man insurance. In most cases, the cost associated with securing key man insurance policies is very small relative to the potential benefit if a key worker dies or is disabled.
Many businesses depend upon a few key people for their ultimate success. Losing one of these main contributors due to a death or disability can be catastrophic to your company. Key man life and disability insurance can protect you and your organization. The cost for key man life and disability is a “drop in the bucket” compared to facing the consequences with any plan. For more information contact MEG Financial today at (877) 583-3955 or get an instant key man insurance quote now!