Make sure your business continues without a key person.
Key Man Insurance
Key Man (person) insurance is a life insurance policy that a company purchases on the life of an owner, a top executive, or another individual considered critical to the business. The way it works is that the company pays the premiums and becomes the beneficiary of the policy. In the event of death, illness or incapacitation of some type, the company receives the insurance payout and “replaces” the individual by either accepting the cash as compensation, or uses the cash to recruit and retain another like individual.
Why Key Man Coverage?
- Your business is a professional services business and key employees cannot be replaced expeditiously because of legal or ethical restraints
- The business cannot continue in the event of a loss of particular people
- Business continuity is a concern
- Future growth or financing is possible
- The key persons are between the ages of 30 and 55
Three primary roles:
- Owner: The person or entity who purchases the life insurance policy and pays the premiums. The owner has the right to sell, transfer, or alter the terms of the policy.
- Insured: The policyholder on whose death the death benefit is payable. As a result, premiums are directly linked to the insured’s health and lifestyle.
- Beneficiary: The recipient of a death benefit is the person or entity who would get the money if the insured died during the term of coverage.
Who Needs It?
- Sole proprietorships
- Small limited liability companies
- Family businesses
Note: A treatment covered in one state may not be covered in another. The amount of benefits provided and the manner in which they are delivered varies from state to state.
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