What is Key Man Insurance?
Key man insurance is most often used in small–to–medium–sized businesses where the death of a key employee could severely affect the stability or profitability of the company. Many companies do not survive the death of a key employee because the knowledge, skills, contacts, or business relationships of the key person are so hard to replace. A key man life insurance policy will give your company the buffer it needs to survive the death of a key man.
It’s essentially just a basic life insurance policy for anywhere between $500,000 and $5 million. Usually, they’re 10- or 20-year term policies. A popular twist on key person insurance is called “first to die.” This type of insurance pays only for the first death in a multiple person policy, and thus, is much less expensive than having individual policies for each key person. Plus, “first to die” policies allow the survivors to take out a subsequent new policy without needing to prove their insurability all over again. Venture capitalists, banks and other lenders often require key-executive insurance for the startup companies they fund. If a death occurs, the key man insurance payment typically goes to the start-up company or sometimes it goes directly to the venture capitalist. This allows the investors and creditors to protect their investment. Even if you are not being asked to buy key man insurance by your investors, it can make sense in some cases. Think about what would happen if
Key man insurance, a.k.a. key person insurance or key employee insurance is coverage that will protect the company or business in the case of an untimely death or disability of a top salesperson, executive or business owner. Key man insurance provides peace of mind to business owners and shareholders alike knowing that the business can continue operations without major disruption in the event of the loss of a key employee. Learn more about Keyman Insurance… Keyman “AKA” Key Person Defined Key employees are those people who are critical to the success and profitability of the business. These individuals may be business owners, partners or executives that have a direct impact on company earnings or whose skills, talents and expertise are crucial to the continued growth of the organization. Learn more about what defines a key person… Who Needs Key Man (Key Person) Insurance? Key person insurance is needed by a wide range of companies and for many reasons but generally is most importan
Key man insurance is a form of insurance coverage available to businesses. The insurance provides resources to help the company weather the unanticipated and sudden loss of an individual who is considered essential to the ongoing operation of the business. In most cases, the insurance coverage is only valid in situations where the loss takes place due to sudden death or disability of the insured party. Generally, the insurance provider has a set of minimum requirements that must be met before key man insurance is issued for an employee of any company. The business must be able to demonstrate that the employee has such qualities as expertise, creativity, or knowledge and ability that are crucial to the ongoing operation of the company. It is important to note that the insurance coverage is only in effect as long as the individual continues to meet the criteria and remains an important or key element in the business operation. Not every incident in which a key employee separates from the
