What would happen if your organization lost an invaluable employee due to death, disability or immediate resignation? This type of scenario can be catastrophic to your business’s survival unless you have key-person insurance.
Most businesses employ at least one individual who is essential to their company’s success. This person may be a partner, owner, majority stockholder or someone else vital to the business.
Who Needs Key-person Coverage?
Your business may benefit from key-person insurance if you have:
Employees whose positions would be extremely difficult, time-consuming or expensive to replace
Highly skilled individuals with unique training
People with exclusive ties to essential clients
Key-person life insurance protects you from the chaos caused by an abrupt departure by providing income support to the business.
How Does Key-person Coverage Work?
As the employer, you must purchase life insurance for the key person or people you have identified. You are the beneficiary of the insurance policy and own it. If your key employee dies, the policy pays out to you as the employer. This tax-free disbursement from the policy can be used to find, hire and train a replacement employee or provide compensation for lost business during the transition or finance timely business transactions.
A key-person policy can be transferred to a departing key employee as a retirement benefit or a different key individual upon the departure of the original key employee. You can also use a key-person policy to buy out the key employee’s shares or interest in your company.
Types of Key-person Coverage
To get a clear picture of why key-person coverage could be most advantageous to your business, estimate the value of your critical employees by asking these four questions:
1. What projects would be lost?
2. What sales would be lost?
3. What costs are associated with replacing them?
4. Is key-person coverage necessary?
To obtain key-person coverage, the key individual must consent, and you must prove that your organization would incur substantial financial loss without them.
To qualify as a key person, most insurers require that the employee’s salary is in the top 20% of your company. All key-person policies are for the specific key individual.
Premiums for key-person coverage depend on the key employee’s age, physical conditions, health history and desired amount of coverage. It’s best to purchase separate policies for each key employee.
For more information on adding key-person coverage to your organization, contact Aegis Financial Partners, LLC at 480-565-6483 today.