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Key Person Life Insurance

If you’re a small business owner, chances are that the success of your business rests heavily on your shoulders. It is your responsibility to make sure that your employees are paid, profits are made, and business runs smoothly. It’s not an easy job, but if you believe in your business, you’ll make it work.

As an employer, you are well aware of the value your employees are to the success of your business.  Perhaps one or more of your employees are crucial to the success of your company.  What would happen to your business if one of those key employees passed away, leaving a significant hole in the operation and/or income of the company.

Key Person life insurance policies are taken out by a business to protect the interest of a company when an important employee (“key person” in this case) dies. The business will pay the premiums on this policy because the business’ financial success will be closely tied with this key person, and their absence would guarantee a decline in business or, at worse, the end of the company. The purpose of key person life insurance is that it ensures the success of a business even if an integral person dies, or at least ease/assist the transition if the company can no longer continue.

The transition process could mean finding a replacement key person to fill the role of the deceased. Or if they business decides to shut down operation, it would use the policy to pay off debts, pay final salaries and provide severance for employees—all necessary precautions to ensure smooth closing while avoiding immediate bankruptcy.


Who needs key person life insurance?

Any business that has one or more employees who are crucial to the success of the company should have key person life insurance on those employees. Medium to small businesses are the most appropriate candidates for key person life insurance policies. However, these plans are not necessary for businesses where the owner is the sole employee. In those instances, purchasing a personal life insurance plan would be more appropriate.


What are the benefits of key person life insurance?

Small businesses are often labors of love that originate from a single, passionate vision. But they also require a great amount of hard work. For the most part, these business owners would not like their company to die with the death of a key person. For that reason, replacement planning—enabled by a key person life insurance plan—would allot time to find the key person’s replacement, thereby ensuring the future success of the business and its legacy.

Family protection is also a major benefit of key person life insurance, especially for entrepreneurs whose businesses haven’t quite got off the ground. Businesses often require a lot of upfront investment to start, and an inexpensive plan would prevent their family from going into financial ruin if the death of a key employee occurs while the investment assets are tied up with starting the business.


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