What is Key Person insurance?
Key Person insurance (previously known as Key Man insurance) is life insurance taken out on a “key person” employed by a business.
In small-to-medium sized companies, this is often the business owner.
It can also be someone who has speciality skills such as a top performing sales person. Essentially, a key person is anyone who is crucial to the running of a business. And if they weren’t around anymore the business would fail. It works like this:
- the company/business takes out a life insurance policy on the key person.
- the company is responsible for paying the annual premiums and is the beneficiary of the policy.
- if the key person dies unexpectedly, the beneficiary i.e. the company receives a lump sum payment.
It can prevent immediate bankruptcy.
Receiving a lump sum payment can often mean the difference between immediate bankruptcy and being able to pay expenses until a replacement person can be found and/or the business can be sold.
Without it, most small businesses wouldn’t be able to survive the blow.
Think about your business. If you or another key person were to pass away unexpectedly how would all outstanding business invoices, loans and other debts get paid? Key person insurance is one way to make sure you, your family and business partners have options.
How much cover do you need?
Well, that all depends on your business. A good gauge is to work out how much money your business would need until a replacement key person (with the same skills and experience) can be found, recruited and trained.