What is Key Man Insurance & Does My Company Need It?
Of all the things business owners have to plan and deal with, key man insurance is one of the most overlooked and important items. Getting key man insurance will never be a top of mind, urgent issue until, unfortunately, it is too late. That is why it is so critical to take a few minutes and establish a policy for yourself, and other vital employees, to protect the financial well-being of your business.
What is Key Man Insurance?
Key man insurance is life insurance on the owner, founder or other key employee of the business. These are the people most critical to the business, who if removed from the day-to-day operation suddenly, would dramatically affect or even sink the company.
How Does Key Man Insurance Work?
The company would purchase the life insurance policy for the designated owner, owners or employees, pay the premium on the plan and are listed as the beneficiary. If the person named on the policy were to pass away the business is paid out the value of the policy. This is where key man insurance differs from standard life insurance. They do not designate the money for a surviving family member, but specifically for the business to use.
What is the Purpose of Key Man Insurance?
This insurance ensures that the business survives in the event an owner or other critical employee passes away. The impact of losing a person this important to a company, who often wears multiple hats and has a wide-range of job duties, can spell utter disaster for the company. The influx of cash because of this insurance allows the company to find a replacement, supplement new business, pay investors, eliminate debt, pay salaries or severance and sometimes sell or close the business in the best way possible.
Determining My Company’s Needs
To determine if your company needs key man insurance, on who, and for how much I recommend speaking with a licensed benefits advisor familiar with this insurance and works with multiple carriers. Through an evaluation of your business, your legacy planning, your personal situation, and your budget, they can provide you with the people you should look into covering and then get multiple quotes from carriers for you. Moving forward make this part of your yearly insurance review process, verifying all information is still appropriate and no adjustments need to be made.
No one likes to think about their own mortality, or the mortality of the people around them, but after the past few months it is more necessary than ever. The time to look into this insurance is when it is not top of mind, when everyone is healthy and the business is doing well. Take a few minutes and pick up the phone or click to reach out to a Benefits Advisor and start this conversation today!