Also referred to as key person insurance or key employee insurance, life insurance for key man is a special type of insurance coverage that is meant to protect a company in the event of the death of a top executive, business owner or salesperson. With this type of policy in place, both business owners and shareholders can take comfort in knowing the business will be able to continue to operate even after the loss of a key employee. While key man insurance is a form of life insurance policy, it is important to realize that these policies offer more than just life insurance. Rather, they offer the company reassurance that the company will continue to operate smoothly even after an important member of the company is gone.
Does Your Business Need Life Insurance for Key Man?
Whether or not you need key man insurance coverage is dependent upon the needs of your business. In many cases, small to medium size businesses rely upon a few individuals and their skills, talents and experience. As such, these people are essential to the long-term performance of the company. The crucial skills that are lost after the death of a key employee may result in falling sales or a loss of productivity. If your business relies upon a particular person whose death would have a damaging effect on the company, it is a good idea to consider purchasing key man life insurance.
How Does Life Insurance for Key Man Protect My Business?
When you purchase key man life insurance, you receive the funds necessary to keep your company stable after the loss of an essential employee. While these funds can never replace that person, it will help your company get through the adjustment period that takes place after a key employee’s death.
How Does Life Insurance for Key Man Work?
If you wish to purchase key man life insurance, you will need to purchase the policy on the behalf of the business. The business will then take ownership of the policy and will be responsible for paying the premiums. While the cost of the premium payments is not tax deductible, the benefits you receive from the policy are generally income tax free.
How Much Does it Cost to Purchase a Key Man Life Insurance Policy?
Key man life insurance typically costs very little in comparison to the potential benefit, which is paid directly to the business. The actual cost of your key man insurance premiums, however, will be dependent how much coverage you wish to buy. Obviously, the larger the benefit amount, the more you can expect to pay in coverage.