Does Your Company Need Key Person Insurance
What is Key Person Insurance?
Key person insurance is simply life insurance on the primary person in a business. In a small business, this is usually the owner, the founders or perhaps a vital employee (such as a CFO). These are the people who are crucial to a business. If they were absent, there would be serious consequences to the business. You need to consider key person insurance on those people.
Unlike personal life insurance, a company purchases Key Person insurance policies on its critical employees. The company pays the premiums and is the beneficiary. If the person(s) named in the policy dies unexpectedly, the company receives a payoff from the insurance company. The insurance proceeds can then be used to cover a range of expenses, such as the cost to replace the key person, pay off debts or investors, or provide severance pay to the staff if the business decides to close down.
Does Your Business Need Key Person Insurance?
The best way to consider if your business needs key person insurance is to evaluate what would happen should you lose a key team member. Would they be easily replaced, or would the business fall apart? Unlike large businesses that have other executives who could step in, small businesses are not afforded this luxury. This is why Key Person Insurance is so important to the small to midsized business.
Another important consideration is that having Key Person insurance in place may make it easier to get financing or lines of credit because it helps to lower the business risks. In some cases, Key Person insurance may be a requirement of your creditor.
If you have plans to sell or merge your business, Key Person insurance is an important additional layer of business continuity protection that will also help increase your company’s value.
How Much Insurance Do We Need?
The amount of insurance you purchase will depend on your business needs versus what you can afford in premiums. Typical key person insurance payouts range from $250,000 to $1 million. Your insurance agent can help you evaluate your needs and help you choose the right policy.
How Can I Get Key Person Insurance?
Key Person insurance is customized for each business. Your insurance agent can help you evaluate your risks and help you determine how much coverage is needed. They can also guide you on choosing the right amount of coverage based on the premiums. It’s also important to review your coverage periodically as your business needs change.
If you think you might need Key Person Insurance for your small business, contact Waller Insurance today. We would be happy to help you evaluate your needs and provide the business insurance coverage you need.