Key person insurance is a type of business insurance that helps you protect your company if one of45 its most important employees passes away. In this article, we will explain what is the purpose of key person insurance, why key person insurance is so important for businesses and entrepreneurs and how it can help keep your business running smoothly.
What is key person insurance?
Before you understand what is the purpose of key person insurance, it is useful to learn its definition. Key person insurance is a type of life insurance designed to protect a business from the financial impact of losing an important employee.
In other words, it is a type of insurance that pays out and prepares businesses for when an insured employee passes away or becomes unable to work due to an illness or injury.
Key person insurance is therefore very important as within most businesses there is often a single person’s name that the reputation and financial status of a company are linked to.
This makes it very popular with entrepreneurs as it allows them to cover their business losses without having to worry about getting approval from an insurer for each individual case.
How does key person insurance work?
Key person insurance is a type of life insurance that can be provided either as a part of a group life insurance policy or as a stand-alone policy.
Life insurance policies will need to be purchased by a business for its main employees so that if anything happens to the person named in the policy the company will be covered.
The main way key person insurance works is by providing benefits to help pay off any debts or liabilities left behind by the deceased, but it can also cover ongoing expenses like employee wages if necessary.
The insurance can be used to cover a range of things within the business including the cost to replace the person who has passed away or pay off employees should the business decide to shut down.
Who needs key person insurance?
Key person insurance is extremely beneficial to have in place, especially for business owners.
In any business, there is likely to be a key person that you rely on heavily to keep the company afloat, usually the business owner, so they must be accounted for should they no longer be able to work
If your business is a sole proprietorship or partnership, then it may not be necessary for you to have key person insurance as you will not have people depending on your business to run.
However, having life insurance for yourself as the only employee is still important if you have a family that is relying on your income for their livelihood.
What is the purpose of key person insurance?
There are many reasons why your business needs key person life insurance with the most important one involving the success of your business in the long run.
Providing cover for the loss of important employees can help protect the financial interests of your company and ensure that it will continue to run despite the loss of a vital person.
Getting insurance is also important for families that are relying on income from the business to stay afloat as, without it, they will not be provided with funds once the key person has passed.
How much cover do you need?
To find out the appropriate key person insurance amount your business will need, there are a few factors to consider.
For example, how big is your company and what will the impact be of losing a key person on your business operations?
Consider the expertise of your key person and what sort of difficulty there would be in finding someone else with a similar skill set.
If their role is essential for day-to-day operations, then getting more cover is the best way to avoid any delays in getting a replacement and could help save thousands down the road
How to apply for key person insurance
When looking to apply for key person insurance it’s important that you do your research.
This will help to give you an idea of what different insurers are offering, what they will cover, and how much it will cost to ensure you are getting the best possible deal.
Before you do anything, it is also important to speak to an expert about your options to help make sure you are aware of the best way to go about getting key person insurance for your business.
For help shopping for the very best insurance deals visit WIS Business Protection. We provide expert help for individuals and businesses looking for support finding the best insurance deals.