Often referred to as Key man insurance, it is a life insurance policy, held by a business, to cover the life of a vital employee. The proceeds from a key man life insurance policy are intended to provide the business with the time and money it needs to stay afloat while replacing a lost key employee.
Who buys key person life insurance?
Any business which employs individuals who are vital to the company’s survival (key employees) is a candidate for key man insurance. Many companies cannot survive the death of a key man or woman because the knowledge, skills, contacts, or business relationships of the deceased are so difficult to replace.
It is most frequent for small-to-medium-sized businesses to find themselves in need of key man insurance, but even large companies use it to protect themselves from the expense of finding and training a replacement for a key employee.
Who qualifies as a key person?
The qualifications of a key man or woman depend on your company (and your discretion). A general description is: an employee who possesses skills, knowledge, contacts, and/or relationships which are crucial toward your company’s continuance but which are very costly or difficult to replace.
Types of key person insurance
A business is eligible to buy any type of life insurance that a family or individual can purchase. Which type is best? Term life insurance is appealing because the key man or woman’s employment is expected to end by retirement age (term life insurance is the most affordable). However, cash value life insurance can also be appealing because it can be liquidated in the event that the key man or woman leaves employment without dying.