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Key Man Insurance Tips for Business Owners

Posted By on Apr 26, 2016 | 0 comments


As a busy business owner, you spend most of your time keeping your company running smoothly. But formulating a contingency plan is another vital part of business planning. What would happen to your business if died or were incapacitated, or if something happen to other vital company members? Your family depends upon the business for their survival, but so do your employees and their families. That places a heavy burden of responsibility on your shoulders. Luckily key man insurance can provide for your worst-case “what if” scenarios, so that your business and livelihood are protected.

Who is a key person? Are the knowledge and skills of a particular person vital components of your business? Would you sustain significant financial harm if this person could not perform their job duties? If so, this employee is a key person. Think of this person or people as crucial to your day-to-day operations and/or long-term success.

How can key person insurance protect my business? The payout from a life insurance or disability income insurance policy can compensate your business for the loss of a key person’s skills. In the event that this person dies or becomes disabled, your insurance benefits would cushion the blow to your company while you proceeded with a plan to replace that person’s skills and abilities within your business operations.

Your business generally owns the key person insurance policy, pays the premium, and is the beneficiary in the event of a payout. Some businesses agree to split premium payments, cash surrender, and benefits with the key employee.

It can be difficult to establish a dollar value for your key person insurance policy. We can work with you to calculate the value of this employee’s contribution to your business, and this number will vary significantly depending upon the type of business you own as well as the key person’s contribution to the company. You might calculate the potential loss of this person’s sales, and add the cost of replacing this employee. Remember to include employment agency fees, salary and benefit requirements for the replacement, and moving expenses. Replacing a valuable employee might require you to put together an attractive employment offer.

If you already have key person insurance, when was the last time you updated your policy? Just as with other types of life insurance, you should reevaluate your key person insurance needs every few years. The cost of replacing this employee is likely to rise over time, as both their contributions and the employment marketplace change. Give us a call, and we can help you protect your most vital business assets.

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