Key man life insurance will really help you keep your business going if you are faced with the death of a crucial employee central to the running of your company. Most employees can be replaced but often not quickly. When you have this type of insurance you have the funds to hire part time replacement staff or to add to the package you are offering to entice a comparable person into joining your business team.
Why is it needed?
Think of this scenario: your company builds custom designed yachts. You are lucky enough to have snagged one of the top half dozen yacht designers in America as your chief designer. Then he has a completely unexpected heart attack and dies. Your company is suddenly without its biggest drawcard. If you hold a key man life policy on this employee there are a range of ways in which those funds can be used to help you look after your business interests.
One of the major consequences of losing a key employee may be a buyout by an existing partner or the need to close a business down. Having funds readily available to spend on transitioning your business from how it has operated prior to the death to what is now required, is very useful. This is a major argument in favour of key man life policies.
If a company is large, investors need to have their interests protected in the event of a key employee dying. A key man life policy is a simple and straightforward way to safeguard those interests. It works by making sure the ongoing effective operation of the business is ensured if the policy adequately covers the impact of replacing and training a replacement employee.
What are the choices about what type key man insurance you take out?
There are different types of key man life policies available. One type is the standard whole life policy in which the value of the premiums paid accrues over time. Another type is a term life policy which has cheaper premiums and covers a key employee for a specific period of time but the value of those premiums does not accrue.
Whole life key man life policies do have specific advantages. As they have an accumulating cash value they give the business a handy line of credit or an asset against which a loan can be drawn. They can also be cashed out or the value of the policy sold to the insured person when they retire.
A term key man life policy is definitely cheaper than a whole life key man life policy. This makes them perfect for smaller businesses who want coverage without a high premium. They will get necessary funds if a key man dies but if that does not occur they are not paying too high a price to cover the risk of losing a key employee.
key man life insurance is held by the business that takes it out. The business pays the premium on the policy and the business is the beneficiary of the policy. This is because it is the business which is in need of funds if it has to cope with the death of a key employee. That key employee may have held a life policy in his own right, but that is an entirely separate matter. As with all insurance, make sure you get a quote from a reputable insurance company before proceeding.
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