Think about your "key" people and what they mean to your business. If you lost them to disability, or worse death, how long would it take you to replace them? How much would it cost you and how can Key Person Insurance help.
Will Your Company Benefit From Key Person Coverage
According to Entreprenuer.com, Key man insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business--the ones whose absence would sink the company.
Key person insurance is often called key man insurance or keyman coverage. It is a policy taken out by a business to allow compensation for financial losses resulting from the incapacity or death of an important employee. Although there is no legal definition for it, key person insurance is an important type of business coverage. Another purpose of this coverage is to contribute to the continuity of the company. A policy's term does not exceed the point of the key individual's usefulness
Although this coverage does not indemnify actual losses, it does provide a fixed sum. The exact sum is specified in the policy's verbiage.
Employers may obtain key person coverage for the health or life of a worker contributing special skills, knowledge or other contributions. To be considered for such coverage, a worker's contribution to the company must be uniquely valuable or consume a considerable portion of the company's worth. Employers obtain this coverage to offset the costs associated with losing the employee. Expenses such as hiring successors, decreases in business and training temporary workers are all important considerations for employers.
Who Qualifies As A Key PersonAnyone who is directly associated with the business may be considered a key person. In addition to this, individuals whose loss could result in serious financial strain usually qualify. For example, company directors, key salespersons, partners, key project managers or other valuable individuals with unique skills normally qualify.
How Do you Define your Key People
- High Salary - high value on this employee
- Decision maker - control over business direction
- Center of Influence/relationships with clients/vendors
- Vital position - technology, sales, product development
- Special talent, education, or experience
Loss Categories For Key Person Insurance
For key person insurance compensation, there are four separate categories:
- Insurance for protection of partnership interests and shareholders. As a rule, this type of coverage enables partnership interests or shareholdings that current partners or shareholders will buy.
- Losses connected to the period when the key person cannot work, when temporary personnel must be provided and when it is necessary to pay for training and recruiting an adequate replacement.
- Insurance for any parties involved in guaranteeing banking facilities or business loans. The value of the guarantee equals the value of the insurance coverage.
- Insurance for profit protection. Some examples include offsetting lost income from cancellation of a business project the key person was involved in, lost sales or losses from delays. There are also several other types of losses.
The treatment of funds received and tax rules for premiums paid for key person coverage vary. In the United States, premiums are not tax deductible.
To learn more about key person coverage, discuss the options with an agent, or contact us today at 617-846-5000 X 135 or, contact us 24/7 by clicking the button below:
With offices in Danvers & Winthrop Massachusetts, Elliot Whittier Insurance has been awarded The Five Star Award of Distinction from the Massachusetts Association of Insurance Agents. Elliot Whittier Insurance is also a Trusted Choice® agency and represents multiple insurance companies, so it offers you a variety of personal and business coverage choices and can customize an insurance plan to meet your specialized needs. You can visit Elliot Whittier online at www.ElliotWhittier.com, email firstname.lastname@example.org, or call 800-696-3947