What Is the Purpose of Key Person Life Insurance?
As the owner of a business who is currently strategically planning, or thinking about beginning with this process, then you can be considering getting key-person life insurance, which is even known as the key-man type of insurance.
This insurance ensures coverage to the most vital person in the company. This policy works similar to that of life insurance as it protects your family financially after your demise. The key person life insurance policy as compared to life insurance of the personal type mainly protects your business.
What is a key person life insurance?
If the owner or any other significant employee of a particular company dies, the key-person life insurance will bring a death benefit to the business. If the reputation and the financial status of your company are closely associated with the name of a particular person, his skill set or reputation, you need to have critical person insurance to make sure that your company is not financially affected if he passes away.
This type of insurance is also useful for partnerships. When one of the two dies, the second person can buy shares of the one who has passed away. This insurance lets the business continue to run smoothly when the executive is looking for a replacement to take over or is implementing other strategies.
How does the key-person life insurance work?
The company ensures life insurance policy for its vital employees will pay for the premiums and will act in the position of a beneficiary for all these policies. It receives a payoff if the key person passes away which can be utilized to pay for various expenses, like getting a replacement, paying off debts and investors, or paying a pittance to the workers if the company dissolves.
What kind of person is the key person insurance for?
Looking closely at the structure of your business and your co-workers may help you decide if you need key person insurance. You may consider someone else apart from you as the key person in the company. If you’re the sole proprietor, you don’t require this insurance.
How much coverage should you purchase?
The coverage your business needs depends on factors like what effect would the death of the person has on your company financially. If you are the sole proprietor, you need to calculate how much coverage your descendants would need financially.
What are the insurance policy exclusions?
Before investing in the policy, read carefully what all it covers. You need to keep in mind that your claim can be rejected if you meet any exclusion. The most common exclusions include fraud of any kind, intentional dishonesty, or suicide within the contestability period, that is, if the person commits suicide within two years after the life insurance policy has been taken.
What is the purpose of key person insurance?
To make sure that your company is continued even after your demise and is not forced to be closed, you need a key person life insurance. Additionally, this insurance helps in sustaining your family after you pass away.
How to apply for key person insurance?
As this insurance is customizable, you need to check the coverage limits and read all the terms carefully. By increasing your premium a little, you can get an increase within your coverage too. Settling for the cheapest policy isn’t a wise thing to do. Renewing the policy later may end you up with paying more as the person will be older.
You need to keep in mind that your coverage limits alter as your business grows. You need to increase the value of the key person accordingly. If you don’t grow and change your policies accordingly, your family will not receive as much money as they might need.