What Is Key Person Insurance?

Could your company bear the loss of a key executive or key employee? Who will lead your company when the CEO retires? What if your top salesperson or partner becomes permanently disabled? Do you have a plan? Having key person insurance policy can help you answer these questions with confidence.

The loss of a top manager or key executive due to a disabling injury or death would have devastating effects on most companies. Key man insurance allows businesses to plan for these unforeseen events and be prepared should disability or death strike.

KeyPersonInsurance.com specializes in assisting organizations of all sizes protect their most important assets, their people, with key man insurance. In most cases, the cost of key man insurance is negligible and very easy to obtain. Don’t make a critical mistake and let the lack of basic planning sabotage your business’ continued success.

Key Man Insurance – A Simple and Easy Way to Protect Any Business

Key man insurance, a.k.a. key person insurance or key employee insurance, is coverage that will protect the company or business in the case of an untimely death or disability of a top salesperson, executive or business owner. Key man insurance provides peace of mind to business owners and shareholders alike knowing that the business can continue operations without major disruption in the event of the loss of a key employee.

Defining A Key Person

A key person is anyone who is critical to the ongoing success and profitability of a business. These individuals may be business owners, partners, executives or salespeople that make a significant contribution to company earnings. They possess special skills, talents and expertise that are crucial to the continued existence of the organization.

Examples of key employees are:

Individuals with creative abilities or technical expertise that cannot easily be replaced including software developers, inventors, scientists or anyone with a niche talent.

Top sales professionals that have extensive experience and a track record of exceptional performance. Many extraordinary salespeople have cultivated relationships with vendors and high end customers that allow them to continually exceed sales goals. This “goodwill” is extremely valuable and hard to duplicate.

Senior level executives that are responsible for managing the daily operations of the company or are responsible for a special project or development program.

Anyone whose death or disability would negatively impact the businesses credit or financial solvency of the organization.

License holders that are fundamental to the continuation of the business. Contractors who hold vocational licenses are one example.

Organizational leaders such as pastors or heads of non-profit associations who are vital to the continuation of the institution.

Business owners that want to plan for the successful transition of the company in the event of the death or disability of a shareholder. Major problems can arise at the death or disability of an equity partner. Chiefly, how is the surviving family member’s share in the company going to be settled?

In summary, a key person is anyone who has such an influence on the ongoing success of an entity or business where their premature death or disability could threaten the very existence of the organization.

 

Who Needs A Key Man Life Insurance Policy?

Businesses or organizations desiring to minimize risk and prevent the potentially devastating effects of the death or disability of a critically important person should own keyman insurance.

It is needed by a wide variety of entities and for many reasons but generally is most important for small and medium size businesses. These companies depend on the expertise and talents of a limited number of individuals. The death or disability of one of these key people may well be a fatal blow to the company. If your business would be threatened by the loss of a key person, you should seriously consider one or more of the key man insurance options.

Building a successful business takes many years and considerable effort and to lose years of hard work and substantial investment for failing to plan is not a sound business practice. And the best part of the deal is the cost of key man insurance is relatively inexpensive and it is easy to obtain in most cases!

Why Buy Key Person Insurance?

Key man insurance is a simple solution to a potential catastrophic problem. It is an inexpensive tool to protect a corporation or other business entity from the damaging effects of the loss of a key employee or business owner. It is also a logical way to insure that a business can retain options and flexibility if a key employee dies or is disabled.

The options provided by key man insurance may include hiring and training a replacement employee, paying the businesses debt and liquidating the company, or “buying time” to sell the company at its fair market value. Without key man insurance in place, most businesses have no option other than to close the business or sell it to a competitor at a significantly reduced “fire sale” price. There is no reason to postpone planning for this potential crisis. The relatively low costs to acquire key man protection make purchasing this insurance an easy decision.

Uses for Key Man Insurance

Key man life and disability insurance can be purchased for many reasons. The primary uses for key man insurance include:

  1. Instant cash is available to recruit and train a capable replacement employee.
  2. Can be used as a collateral requirement to guarantee an SBA loan.
  3. Provides liquidity to meet unexpected cash flow expenditures until a disabled employee can recover.
  4. Proceeds of a key man life insurance policy can be used pay off debt.
  5. Cash is immediately available to buy back stock from a deceased or disabled owner’s estate.
  6. Salary continuation arrangements to surviving spouse.
  7. Can provide additional executive benefits to key employees to help tie them to your company, i.e. “Golden Handcuffs”.

Understanding the Different Types of Key Man Policies

Simply stated, keyman insurance is a fundamental risk management strategy for all types of small and medium size businesses. It has been a well know concept for many years and is recommended for any company that would be significantly affected by the loss of one or two key people.

There are generally two types of key man insurance:

  1. Key Man Life Insurance, and
  2. Key Man Disability Insurance

Key man life insurance works exactly the same way as an ordinary life insurance policy. The only difference is the policy is owned and paid for by a business and the business is also the named beneficiary. In the unfortunate event the key person passes away, the death benefit or face amount is paid directly to the company.

There are many variations of key man life insurance but the most popular type of policy is a 10-year term life plan. In many cases, there are options for no exam key man term insurance. See the sample keyman life insurance rates below:

How Much Does Key Man Life Insurance Cost?

Ages
$250,000
$500,000.00
Exam
No Exam
Exam
No Exam
M
F
M
F
M
F
M
F
30
$107
$100
$154
$119
$155
$140
$210
$150
40
$127
$125
$187
$161
$195
$185
$273
$203
50
$275
$223
$312
$263
$485
$395
$525
$438
60
$663
$490
$785
$564
$1,225
$870
$1,463
$956
65
$1,105
$768
N/A
N/A
$2,110
$1,400
N/A
N/A

For alternative insurance amounts and term durations, you can get a custom quote instantly on this website. Our exclusive database contains over 60 of the nation’s best key man life insurance companies and there are literally thousands of scenarios that can be analyzed.

Key man disability insurance is a unique form of disability coverage designed specifically for the threat of a short term loss of a key person due to a disabling accident or illness. Key man disability policies are intended to replace the value provided by the key person or to provide monthly income to hire a capable replacement. Like key man life insurance, key man disability insurance is owned by the company, paid for by the company for the sole benefit of the company.

Key man disability insurance is a specialty kind of policy and is therefore not offered by many traditional insurance companies. In fact, these policies are usually custom designed for the exact needs of the business. Therefore, sample key man disability quotes are not available for comparison here but can be provided relatively quickly upon request.

How Key Man Coverage Much Will You Need?

Determining how much key man insurance you may need is not rocket science. However, you should definitely spend some time brainstorming on why you are considering the insurance. In fact, you should ask yourself the question, “Why do I need key man insurance?” The answer to this question will give you a great idea of the type and amount of key man insurance you should purchase. If you closely consider the impact to your company of the death or disability of a key person, you can begin to understand the level of protection you need. The ultimate goal should be to get the right amount of key man insurance to achieve your company’s objectives and not a dime more.

For more detailed information, see “How much key man life insurance do I need?

Advantages of Key Person Insurance

Included below are just a few of the many advantages of key person insurance:

  1. Both key man life and disability insurances are relatively inexpensive. In fact, key man life can be funded with inexpensive term insurance.
  2. Purchasing a key employee insurance policy is generally painless. There may be an exam required, but in some cases there are even no-exam key man life insurance policies available.
  3. Security and peace of mind knowing that the business is protected.
  4. Proceeds of keyman life and disability are generally received by the business tax free.  For more detailed information, see taxation of key man insurance.
  5. Can be used to provide benefits to retain key executives.

What Key Man Insurance Cannot Cover

While key man insurance is a viable risk management strategy for many businesses, there are a few instances where it is not applicable. A few of the examples include:

  1. Key man insurance cannot be purchased to protect against a key person leaving your firm to work for a competitor. Unfortunately this is not a definable risk and therefore cannot be insured.
  2. Key man insurance is not available to individuals that are not employees of your organization. In other words, 1099 contractors are generally not insurable under the key man insurance scenario. The chief reason is that in many cases, a replacement contractor can easily be located elsewhere. There are exceptions under “exclusive” special contractual arrangements.
  3. Key man insurance is not available to cover a non-key person. For example, an office assistant would not be considered a key person for the purposes of insurance as that position could readily be filled rather quickly and without considerable injury to the business.
  4. Any other situation where an “insurable interest” is not present. An insurable interest exists when loss of the key person would cause the business to suffer a significant financial loss.

Protect Your Business Today with Key Man Insurance!

As a business owner, chief financial officer or board member, you have a responsibility to your company to make sure business risk is minimized. Key man insurance is a cost effective way to eliminate the unnecessary risk associated with the disability or death of a critical contributor to your organization.

Whether your business is a start-up firm needing key person insurance to secure financing or an established company requiring business succession planning, KeyPersonInsurance.com has the business life insurance and disability insurance expertise required to assure your company gets a superior solution at the absolute best value.

A well-structured key man insurance policy could very well be the difference between your company’s continued success and its ultimate demise. It is your obligation to mitigate this risk with key man insurance.

Is Your Company Prepared? Why Not?

Testimonials

"Michael Gray, Jr. of MEG Financial assisted our firm in procuring policies for our key employees. He was knowledgeable about the market, thorough, persistent and utterly professional in dealing with our challenging underwriting issues. We are completely satisfied with the results of MEG Financial."

Sue Lamb, Administrator
Owens & Turner, P.C. Alaska

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