How Key Person Insurance Works and Who Should Get It
Are you a small business owner? Have you heard of key person insurance? This particular type of insurance provides life insurance for, as the name suggests, a key person in the business. This could be an important employee, a partner, or the owner. These are people upon whom the successful operation of the company is dependent. With this type of policy, the business is actually named as the beneficiary.
How Does It Work?
In essence, this is simply a life insurance policy. The company purchases the policy individually for any key employees in the company. If that person dies unexpectedly, then the company will receive the insurance payoff from the policy. These types of policies are very important for small businesses. Smaller business will not generally have the funds to survive if one of the key personnel passes away.
This type of policy will provide them with the financial help they need while they try to keep the company going. They will use the funds from the insurance to cover their expenses while they try to make their business work. Often, companies will use the money to help stay afloat as they try to find someone to replace the key person. However, if the business is still unable to go on, the funds from the insurance policy can help them in other ways. It can return money to investors, pay severance for employees that may need to be let go as the company folds, and to take care of outstanding debt.
Who Should Get Key Person Insurance?
Even though you might think your business is too small for this type of insurance, that’s not the case, especially if you want the business to be able to continue even after the death of the key person, or persons, at the company. In a small business, people who should probably have this type of insurance policy on them include:
Certain key/influential employees
When you are deciding who should have key person insurance policies, make sure that you only try to get policies for the most essential and important personnel. You also need to make sure you are getting good rates for your policies. Check the quotes from different companies and find the one that is right for your business’s needs. Make sure that the policy will be large enough to help the company get back on its feet after the death of one of the key personnel.
What if you are the owner and the only employee at the company? In that case, even though you are the key person, you will not need this type of insurance. This is because there really is no business without you. You are the only one keeping it going. You will naturally want to be able to provide for your family at this time. However, this will necessitate a regular life insurance policy rather than a key person policy.
Too many small business owners neglect getting this type of policy, feeling that it is not necessary. While no one thinks about dying or likes to plan for that possibility, it is important that you do. This will ensure that the business is capable of continuing even after a tragedy. It is always better to be safe rather than sorry.
If you are in need of key person insurance, or any type of insurance coverage for that matter, get in touch with us. We can answer your questions and find the policy that’s right for your needs, whatever they might be.