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Key Person Insurance

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Another type of life insurance that favors a company setting is known as key person insurance. This insurance is used by companies or organizations for a certain member(s) of the company.

Also, this is quite different from the supplemental life insurance that most businesses and organizations use on their high-end employees and board members.

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Even though this key person insurance is also a type of life insurance used by companies and organizations, it has its own rules and perks away from supplemental life insurance and its policies.

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So, for every company, even when the supplemental is in place, key person insurance is also a necessity for very obvious reasons that we are about to share now.

What Is Key Person Insurance?

Key person insurance is basically a type of life insurance for a key person in a company or organization. It is also called business life insurance.

In most cases, the key person of a company is the company owner. Other times, it could be an employee, a top executive, or someone that really matters to the company.

The company identifies these people as the lifeline of the company because they recognize their value. As it stands, if anything should happen to the key person(s) in an organization, it will greatly affect the entire organization.

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Therefore, the organization purchases a key person life insurance for these sets of people. This type of insurance remains tax-free.

How key person insurance works

In a small organization, the key person is usually the founder or the owner of the organization or company. Now, a company sets out the key person in the company. It could be a man or a woman.

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Then, the company buys key person insurance coverage on their behalf. It does not stop there, the company takes up the payment of the premiums of the insurance and becomes the beneficiary of the policy. This will go on as long as it should.

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So, when the key person of the company passes away suddenly or becomes disabled, the company will not be greatly affected by the sudden loss.

Ultimately, this insurance is to protect the company from going down once the key person is no longer in the picture.

The company uses the money gotten from the benefits of the key person insurance to thrive and sustain itself until it can move on its own without the key person. After a while, the company picks another key person to protect the business.

Who is qualified as a key person?

The owner or founder of a small business is literally considered the key person of the business. However, there are other people that are part of the business that can qualify as key persons.

Maybe this could be an employee or a board member or a top executive of the business. In essence, the key person is typically an irreplaceable member of the business.

Someone whose absence will seriously shake the business. The company makes sure that the value of the person involved is equal to the coverage.

So, once a business, company, or organization identifies such people, they buy this coverage on such people to protect the company.

What can key person insurance cover?

The insurance takes effect when the key person passes away or becomes disabled. The benefits from the insurance help the company to stay afloat by

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Pay off any income lost in the event of the passing away of the key person.

The benefits will take care of the company’s financial needs until the company appoints a new key person.

Train the next key person

Besides, this insurance coverage can serve another purpose because the company can take out loans through the cash value accumulated in the policy.

Types of key person insurance

Moving forward, the key person insurance is of different forms. A company can purchase key person insurance in this form:

Term life key person insurance

Companies make use of this type a lot because it is always cheaper. The term life key person coverage lasts for a period of 30 years. However, the company can renew the policy if the key person is still actively involved with the company.

Permanent life key person insurance

This type of coverage lasts forever, so far the company keeps on paying the premiums regularly. it equally builds a cash value for the company. this cash value can serve the company when in need like taking out a loan.

Disability key person insurance

If the key person becomes disabled at some point in active service to the company. This coverage benefit takes care of the company in their absence.

Cost of key person coverage

The cost of this type of coverage generally depends on the current health of the key person, the age, and again, the type of key person coverage that the company is willing to buy. Most companies go for term life coverage because it is always cheaper than permanent life insurance coverage.

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Furthermore, the size and budget of the company play a role in how much insurance they will buy. So, it is better to diligently shop for quotes from companies that offer this coverage. Compare the quotes and all each company offers and costs. This way, the company decides on the best insurance company to use.

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