Key Person Insurance
Keyperson insurance is a critical component of any organization because it can help the company survive the blow of losing an integral member of your business.
Replacing a key person takes time, money and could cost your business valuable clients during the transition. Key person life insurance offers a death benefit that can help cover financial losses that occur at the death of a key person. This helps assure continuity of the business for employees, customers and creditors.
Taking out a key person policy on your top employees also affirms their value to your business, strengthening the relationship.
Other features of key person insurance
- The death benefit can be used to recruit and develop a replacement for the previous key employee
- Coverage is a business asset that enhances your company’s creditworthiness for commercial borrowing
- The policy’s cash value may be available to your business through a withdrawal or loan if needed
- The business pays the premiums, and they are non-deductible
How much life insurance is needed on a key employee?
This is a difficult question and budget will, no doubt, be a factor. Most life insurance companies will approve up to 5-10 times the key employees’ annual salary including bonuses. Age will be factored in as well on the multiple of income allowed. The insurance carrier will want to know the nature of the business, when the company was started, net worth of the company, if the key person is an owner of the business and if all key people will be insured. Insurance carriers will want to see that all key people, or owners of the company will be insured. It’s a red flag to them if any key persons or owners aren’t being insured, unless they are uninsurable.