Who Needs Key Person Life Insurance?
Key person life Insurance is pretty simple, it’s life insurance for one or a few important people within your business. Depending on your business size, you may only invest in this policy for one person, but if you have multiple lead executives that your business depends on, you may want to insure them all. These are the people who are crucial to your business, the ones whose absence would sink the company. The purpose of Key Person Life Insurance is to help your company survive the loss of a person who makes the business work.
So how do you determine who needs this policy and who doesn’t? Look at your business and think about who is irreplaceable in the short term. For many smaller businesses, it’s the owner who is the person who holds the company together.
How Does it Work?
Your company purchases a life insurance policy on its key employee or employees, and then pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies, the company then receives the insurance payoff. The death of an executive member of the company is important to insure because if you’re uninsured, that magnitude of loss could completely crush your business.
If your company is a sole proprietorship and it just employs you or has no other people that depend on it, then key person insurance is not as necessary.
Key person life insurance is not personal life insurance, it focuses on the company only and if you have other people in your personal life that depend on you, you’ll need to invest in both key person and personal life insurance. It is also different from workers compensation or PEO. So, do not confuse either policy with one another. They are separate and you may need to invest in both policies.
At Gulf to Atlantic Commercial Insurance, our experienced representatives can help you decide who your company needs to insure. It can be a bit confusing, so do not hesitate to call us with any questions. We are here to insure the success of your business. We can also help you decide how much money you need to insure. A good rule of thumb is to figure out how much money your company would need to survive until it could replace that key person, and then insure that amount of money.