How does a key man or person life insurance policy benefit your company?
Wednesday, October 29th, 2008 by plrpro Subscribe To Our Feed
How do you really know if you need this type of coverage and what does it do? A key man life insurance is exactly what the title says it is, it protects the life or lives of key employees that work for your organization. A Key man also could mean the business owner as well as a valued employee.
This type of policy helps protect the companies owner and the other employees in case of the death of the highly valued employee or owner. Savvy business people understand the importance of Key Person plans in there overall planning objectives along with long term business succession since the key man could be the person who the business will be sold too.
The business buys a term life insurance policy on the life of the key employee or possibly a cash value policy. They pay for the premiums and they are the ultimate beneficiary of the policy. Upon the death of the covered employee the company will receive the death benefit proceeds from the policy. The monies are typically used to offset any decreased revenue, pay bills, hire new and qualified replacements and to fund a benefit for the deceased’s family.
How do you know if you need this type of policy or plan to help protect your business?
By answering a few simple questions you should be able to figure out if key man coverage would be a good choice for your business.
- How would your company be affected if a key person died suddenly or unexpectedly?
- How hard or difficult would it be to replace the key people in your company or organization?
- How would your clients react to the death of the key employee, what if you lost your valued employee to your competition. would your current clients follow your key person?
If these situations would affect the profitability or revenue stream of your business a term or permanent life policy could help solve the problem.
How does Key Person Insurance help you or the company when the policy is needed? This type of plan will give your business cash flow when it is needed, customers may leave for a competitor, your creditors will feel more at ease and you have money to hire a replacement.
What are the advantages of a Key Man Life Insurance policy? Business gets to select which employees are included in the plan. Life insurance proceeds are distributed income tax free to the business (typically). creditors and customers can feel at ease knowing that the continuity of the business will not be affected. You dont even need to submit this plan to the IRS for approval and the plans are very easy to set up.
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