Key person insurance, sometimes referred to as key man insurance or even business life insurance, is a life insurance policy taken out on “key” people within a company. The business is the one who pays the policy premiums and is also the beneficiary of the policy.
Here is an overview of the benefits of a key person insurance policy, along with some commonly asked questions:
Who can be a key person on a life insurance policy?
Usually, someone who is integral to the company’s survival is chosen for a key person life insurance policy. This can be the founder, the owner, or one of the company’s high-level executives. Someone could also be a key person because they have an invaluable skill set or specialized knowledge that makes them nearly irreplaceable.
What is the purpose of a key person insurance policy?
The point of having a key person insurance policy is if one person is crucial for the company’s survival. It might be that they are the only individual capable of running the business, or that their death or incapacitation would have a profoundly negative impact on operations. For small businesses where that is the case, key person insurance may be worth considering.
What happens if the key person named on the policy dies?
If the key person dies, the policy will pay out, providing the company with the capital needed to stay afloat during a difficult time. Although there are other methods of obtaining funds, the benefit of life insurance is that it pays out soon after the person’s passing, so the money is available when it is needed most.
What can the money from a key person insurance policy be used for?
A company can use the funds distributed through a key person insurance policy to take care of any necessary expenses, whether they intend to keep the business running or plan to close up shop. Here are just some examples of what this money could be used for:
- Day-to-day operating expenses
- Paying off debts
- Offset costs while searching for a replacement to hire
- Distributing money to investors
- Employee severance
How does a key person insurance policy benefit the named person?
While the advantage of a key person policy for the company may be obvious, is there any benefit for the person named on the policy themselves? Yes — sometimes. If the key person retires, then the company has the option to sell or bonus the policy to the key person if they no longer wish to keep it in force.
Get a Quote for Key Person Life Insurance
If your business could benefit from the peace of mind of guaranteed funds in the event of an unexpected tragedy, reach out to GE Insurance to get a quote for key person life insurance today.