Key Man Life Insurance
Key Man Life INsurance: One of the most significant uses of life insurance in a business is "key man insurance". With key man insurance, your business financially secures itself against the potential early loss of someone who is so vital to the company's profits or continuance that without them it's a very realistic possibility that your company will suffer severe financial losses or have to fold entirely. Key man insurance is most often used by smaller businesses, but big businesses also use it. Key man life insurance is different from disability insurance on a key man. Life insurance on a key man (or woman, for that matter) covers against the permanent, irrevocable loss of them from participation in the business. It pays out the death benefit to the company (which is also the payer of the premiums), which can then use the proceeds to pay off creditors, make it affordable to hire a successor, or set up a "buy-sell agreement" to buy out the deceased company (wo)man's shares. Now, many people naturally assume that the key man insurance policy needs to be on the company's founder/owner or a member of the highest ranking executive management. This is, indeed, often the case. But it doesn't necessarily have to be that way. The "key man" (or men; there can be more than one) might be a top salesman without whom your business will take serious hits to its revenues; or that marketing director without whom nobody knows where or who you are. So, when should your company consider buying key man life insurance one one or more members or employees? Again, if the ongoing activities of the business are heavily dependent upon a certain person, that's one time to consider key man insurance. One note: if the key member in question is under the age of 65, s/he should also have a disability insurance plan that coordinates with the key man life insurance. You see, working people under the age of 65 are far more likely to become disabled than to die an untimely death. If you coordinate your key man life insurance with disability insurance, you'll save on premiums while having a better comprehensive insurance plan. Key man life insurance can also be necessitated if a smaller business takes out a business loan. The loan is officially granted in the name of the key persons, who in turn take out at least enough of a life insurance policy to pay off the full principle of the debt if they die before the loan is paid back. With some smaller businesses, they have a great salesman who brings in a very large percentage of their revenues. If he dies, it will be difficult to replace him, and there will be a time lag between his death and finding and training the new salesman anyway. During this time, company revenues may go down through the floor. The company can use the death benefit proceeds to keep paying expenses that would have been paid for by that salesman's work. An analogous situation might exist for, say, an IT company that has a "genius" software designer or computer scientist on its staff--without her, they could very well see a precipitous drop in productivity for a while and will need the death benefit pay to sustain them while they find a replacement or adjust. Now, how much death benefit should be carried on the key man? This depends on both the size and the debt situation of the business. Some companies carry this life insurance policy in face amount that's just twice or triple the person's annual salary. But many such policies are written for as much as 15 times their annual salary. If you feel that you need this kind of life insurance for your company's most important person or people, consult with some life insurance agents to find out how to acquire it. FindLifeQuotes was designed to give you one simple form to fill out in order to save you time. |
