Which employees should you have a key person life insurance policy written on?
How do you really know if you need this type of coverage and what does it do? A key man life insurance is exactly what the title says it is, it protects the life or lives of key employees that work for your organization. Key Man policies are not restricted by government guidelines so you get to determine who the business would like to insure.
This type of policy helps protect the companies owner and the other employees in case of the death of the highly valued employee or owner. Smart business people know how important a key man plan can be in the planning and logevity of what is most likely there largest single asset.
The business buys a term life insurance policy on the life of the key employee or possibly a cash value policy. premiums will come from the business and they will be the beneficiary of the death proceeds. Upon the death of the covered employee the company will receive the death benefit proceeds from the policy. The monies are typically used to offset any decreased revenue, pay bills, hire new and qualified replacements and to fund a benefit for the deceased’s family.
How do you know if you need this type of policy or plan to help protect your business?
By answering a few simple questions you should be able to figure out if key man coverage would be a good choice for your business.
- Could your company withstand the loss of one or more of your key employees from a sudden death or accident?
- What would you do if one of your key employees suddenly died or became disabled?
- How would your clients react to the death of the key employee, what if you lost your valued employee to your competition. would your current clients follow your key person?
If you answered yes to the above you probably need to seriously consider purchasing a key man life policy on one of your key employees.
How does Key Person Insurance help you or the company when the policy is needed? First it can help with interrupted or lost cash flow, loss of clients to a competitor, negative impact on your credit and last but not least provides capital to attract and hire a qualified replacement.
What are the advantages of a Key Man Life Insurance policy? Business gets to select which employees are included in the plan. Life insurance proceeds are distributed income tax free to the business (typically). Your creditors will be able to relax knowing that your business has cash on hand for liabilities. You dont even need to submit this plan to the IRS for approval and the plans are very easy to set up.
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