Should you consider a key person policy?

Should you consider a key person policy?

In today’s business world, attracting and maintaining top talent is essential in ensuring success and profitability. Hiring the right personnel can have significant implications for the company’s short-term and long-term welfare. The sudden loss of a valuable staff member can greatly affect the company’s performance. That’s why your corporation should consider a person policy as it is such a vital necessity for any company.

What is a Key Person Policy?

Regardless of whether you run a small, medium, or large-sized enterprise, your employees are the lifeblood of your company. There are always those employees who are essential to the company and can’t easily be replaced. When replacing a CEO or high level employee it can take up to 75.7 days before a replacement employee is in place. Key person insurance is a type of policy that a company buys to cover for financial loss suffered following death or permanent incapacitation of a key member of staff.

Who Is a Key Person?

A key person is any member of the business with highly specialized skills, whose loss can result in financial strain. Key persons may be a major stakeholder, the CEO, or someone responsible for bringing in substantial sales. A key person is often very difficult or expensive to replace and their loss would have a ripple effect on the company.

Why Do Major Corporations Take Out a Key Person Policy?

At its core, a key person insurance policy offers financial cushioning in the event of the sudden loss of a certain employee. The financial benefits of the policy give the company enough time to source substitute talent or implement alternative strategies to keep the business from going under. A key person policy also covers disability in case the employee covered is unable to continue working.

Who Pays the Premiums?

A key person policy is taken under the name of the business and as such, its premiums are a business expense. The company buys the policy on the specified employee(s), pays the premiums, and is ultimately the policy’s beneficiary. Subject to the person’s death or incapacitation, the company receives the death benefit.

What Categories are Covered by a Key Person Policy?

A key person policy can cover a company against a variety of risks. These include:

  1. Protection of partners or shareholders. The policy enables surviving partners or shareholders to buy the financial interests of the deceased or incapacitated employee.
  2. Protection of profits. The policy offsets any loss of income, be that in the form of delays or business cancellations involving the key person. 
  3. Guaranteeing business loans or banking provisions. The policy is designed to cover the recall of the loans guaranteed by the key person.

How Much Does Key Person Insurance Cost?

The cost of premiums mainly depends on the nature and size of the business and the key person’s role in the company. The cost of the policy also depends on whether the company buys a term life policy that covers death within a specified period or a permanent life policy that lasts the entirety of the insured employee’s lifetime.

Key person insurance is a necessity for any business that’s serious about securing its future. By covering essential employees, key person insurance cushions against the sudden financial shock of losing a valuable member of the team. Regardless of the nature of your company, we can help you get a key person policy in place today! Contact us today at 866-277-7162