What is Key Man Life Insurance?

Think about this. You have spent years building your business into what it is today. Tirelessly you built up your staff and gathered trusted team members around you. You might have even brought a partner into the business to bring on some additional expertise that you were unable to bring to the business yourself. Now you are able to enjoy the fruits of your labors, content that your business will continue to grow and pay back all of the hard work and long hours that it took to get to where you are today. Could your business survive? Do you have the resources set aside that it would take to recruit and replace that person? These are important questions to ask yourself when you are working on the longevity of your business and its continued survival. However, there is a solution to this situation. In order to protect yourself and your business, you can purchase a type of life insurance that is referred to as key man insurance (also called key person or key employee insurance). This will offer your company a safety net in the event of the unexpected death of disability of one of your top sales personnel, a senior executive, or the business owner. Knowing that the business will be able to continue running normally in this event without a major disruption will bring peace of mind to both you and your shareholders. Having this type of insurance in place could mean the difference between the survival or failure of the business should the unexpected happen. This may sound melodramatic, but think of what would happen if your million dollar a year salesman suddenly passed away and you had to rebuild all of the relationships he had built, or if your CFO passed away. This type of coverage is more than simply life insurance. Life insurance is very important for a good key man, and also key man disability insurance is. The risk of death is always there, but across all age groups, the risk of disability is far higher. Especially among small and medium sized businesses, you success is dependent upon a small handful of people that have highly specialized skills and experience. The loss of any of these employees through death or disability can negatively impact the future performance of your business. The solution to this problem is to protect your business with key man insurance. This will give you the financial means to be able to stabilize the company during the adjustment period after the unexpected loss of a key employee or executive. You will also have significant costs during the process of identifying and training that have the talent to be able to step in and learn the job of the former employee. You should get this insurance in place if your business can be negatively impacted by the loss of one or more employees so you can reduce your risk. Additionally, on top of life and disability insurance, many companies will also purchase a policy that will bring in the amount of funds that are necessary to replace or recruit a replacement for those personnel that you are interested in protecting. When compared to the benefit that is received after the loss of a key employee or owner, the cost of securing these policies is very small. With a key man life insurance of policy, the business gets this insurance on the life of the key person. The business will own the policy, pay all premiums, and is the beneficiary in the event of the death or disability of the employee. The premiums that the company pays are not tax deductible, but in most circumstances, the proceeds that are received are not taxable. The main thing to remember is that these policies are meant to protect the company, not the employee. If the company collects on this insurance, these proceeds can be used by the company in any way that they see fit. Most of the time, the proceeds are used to cover short term revenue deficits as well as cover expenses during the search for a suitable replacement.