Does Your Business Need Key Man/Person Insurance?

Owners of small to medium-sized businesses face many issues on a daily basis. One issue the owner may not have considered is: What would happen to the business if I lost a key staff member? Could the business survive if your key employee was lost due to illness or death?

What is key person insurance?

Key man/person insurance protects the business and is essentially a life insurance policy on the key person. This policy provides insurance to the business owner against financial loss incurred in the event of an extended illness or death of the key individual. The payout received from the policy ensures the viability of the business during the transition time where the owner seeks out a replacement for the key individual. The life
insurance policy taken out on the key person compensates the business entity with a monetary sum decided upon by the owner.

Does your business need key man insurance?

In a small business, typically the owner will mostly be negatively impacted if disaster strikes. With the purchase of key man insurance, the company can be protected against financial loss. To determine whether your business could benefit from the purchase of this insurance, you need to ask: Could the company continue to operate at its current level, for an extended period of time, if the key person were out of the picture? If the answer is “no”, you should speak with a life insurance professional about purchasing a key man policy.

Determining who the key man/person is?

In a small to medium-sized business, every employee is crucial to its operation. However, one employee may be relied upon to oversee the entire operation. The key man in any operation is the person who has the specific knowledge and talent to keep the business running and financially stable on a day-to-day basis. If this person was not at the helm, the financial impact could be devastating. The business owner has to prove to
the insurance underwriter the importance of that individual to the organization’s viability.

How it works

Upon the death, extended illness, or incapacitation of the key person, the policy payout will allow the company to stay afloat until that person returns to work or is replaced.