You’ve protected your business with your business owner policy, workers compensation, and commercial umbrella. What happens if one of your key people suddenly passes away? Would the business be forced to close its doors? Will production take a hit? The loss of a business owner or key individuals in a business can have a significant impact on day to day operations. Fortunately, Key Person Life Insurance can help keep you company going.
What is Key Person Life Insurance?
Key Person Insurance is life insurance on a key employee, partner or proprietor on whom the continued successful operation of a business depends. In a small business, usually, key persons such as the owner, founders, perhaps key employees could be named insureds on the policy. A business will buy the policy, pay the premiums and designate themselves as the beneficiaries.
How does This Benefit Small Businesses
Losing someone vital to your organization can have an immediate impact in the short term. For small businesses, losing a key employee can mean having to sell the business or shut down operations. With the proceeds from the life policy, a company can use the money to pay employees, pay shareholders (if incorporated), pay off debts or pay severance to employees if the company shuts down.
Does My Business Need Key Person Coverage?
Look closely at your organization. If you are a sole proprietor, you probably don’t need life insurance for your business. However, if your business would suffer after the death of a key individual (i.e. owner, manager, or salesperson), then a key person policy should be a part of your business plan. Think about how much money your organization would need to survive in case one of your key people passes away. Once you have an idea of how much cash your business would need, your insurance agent can help you decide what plan is right for you. If cost is a concern, a term life policy might be the right fit. For those that want their policy to build cash savings, whole or universal life insurance could work.