Key man insurance provides protection against the loss of key employees. This article answers the question: what is key person insurance and who needs it?
If you’re a business owner, you know how important it is to have a key person in your company. This person is usually the one who brings in the most revenue and is vital to the success of your business. As a result, you might want to consider key person insurance.
This is an essential tool for companies to have in place to help ensure the continuity of the business in the event of the death or critical illness of a key employee. But what is key person insurance, and who needs it? This article explores the meaning of key person insurance and provides information on who should take out this type of coverage.
What is key person insurance and who needs it?
To answer the question ‘what is key person insurance and who needs it’ first let’s understand what a key person is. In business, the term ‘key person’ refers to an individual whose skills, knowledge, or experiences are critical to a company’s success. Key person or key man insurance is a type of insurance that business owners purchase to financially protect themselves in the event of this person’s death or critical illness.
For example, suppose a company has an important employee responsible for developing new products. If that employee were to die or is unable to come to work due to a serious health issue, the company would likely suffer a significant financial loss. To protect against this possibility, the company might purchase a key person insurance policy on the employee’s life.
Another example might involve a small business heavily dependent on a single individual for its success. In this case, that individual’s death or critical illness could shatter the company. To guard against this possibility, the business might purchase a key man insurance policy. The policy’s benefit can help replace the company’s lost revenue and profits caused by the key person’s exit.
Who needs key man insurance?
Key person insurance can be a helpful financial tool for small businesses and start-ups. If an important employee dies at an early stage in a company’s development, it could lead to failure. However, business continuity will be ensured if such an individual is replaced at the right time. While the insurance cannot replace the key man, it can help the company to continue operating while they search for a replacement or make other arrangements.
Some examples of people who may need to be covered by key man insurance include:
- CEO of a company
- Key salesperson
- Someone with a unique skill set or knowledge base
- Someone who holds a key patent
What are the advantages of key person insurance?
Keeps your business running smoothly
If an employee becomes medically incapacitated, key person insurance can help cover their salary costs until they can return to work. If the employee dies, this can help ensure your business has the resources it needs to continue operating and avoid significant disruptions.
Covers costs of recruiting a replacement
The benefit from the policy can help pay for the cost of advertising, interviewing, and training the new employee. It can also help pay for any salary differential between the old and new employees.
It helps you attract investors
This type of insurance can help to ease investors’ concerns about the stability of your company and can give them peace of mind knowing that their investment is protected. It provides them with a financial safety net in case of an unexpected death or disability of top talents in your company. It also helps attract new investors because it shows you have a contingency plan in place for when one of your employees leaves their position.
Improves morale of staff members
Key man insurance can help ensure that the company can continue to operate despite the loss of a key employee and help provide peace of mind for other staff members.
It helps avoid liabilities
This type of insurance can be an essential tool in helping to avoid potential liabilities for a company. It can help cover any lost revenue that may occur if the key employee cannot perform their duties.
Where can I purchase keyman insurance?
If you’re looking to purchase keyman insurance , you should speak to a reputable financial adviser.
At WIS Business Protection, we work with various insurers to find the policies that best suit your business needs, and we are always on hand to offer advice and support.
Contact us today to learn more about our services and how we can help you protect your business.