Key Man Life Insurance: Insuring Key Staff To Protect Your Business

Key Man Life InsuranceAs an entrepreneur, your business has a critical role in the economy’s growth. Your creative thinking and innovation is evident in the products, services, and jobs you create. However, the company you worked so hard to build can vanish at a moment’s notice if you’re not properly insured.

Your business is your livelihood. There are a countless number of things that could happen that could sink your business and destroy everything that you’ve worked so hard for, if you don’t have the proper insurance policy, you could be left with nothing but a massive amount of debt. No matter what amount of insurance you are looking for, we can help. There are companies who offer one million dollar life insurance policies should this interest you.

If your input is crucial to your company’s survival, then you must have key man insurance as a part of your succession planning – especially if you’re an up and coming business.

Key man insurance protects your company’s bottom line in the short and long-term. The benefits paid out from the life or disability benefits would:

  • Recruit and train a successor
  • Repay your creditors
  • Pacify lenders and convince them of your company’s financial health
  • Assure employees, investors, and customers of the company’s survival.

Key man insurance is critical if your family relies on the business as their main source of income. It will ensure the business continues to provide for your family’s financial needs.

What Is Key Man Insurance?

First things first: Key man insurance is not a standalone product. Insurers frame the policy around a traditional life insurance or living benefit (cash value) life insurance.

In most cases, the life insurance variety outsells disability insurance, simply because issuers are reluctant to insure the large amounts needed to sustain a company if the key person is disabled.

Most buy-sell insurance policies include a key person component, so that’s something you could take into consideration.

There is a lot of confusion around key man insurance policies, but it’s vital that you understand the coverage that you need and how to get it. Basically, key man insurance is essentially a traditional life insurance plan, but the beneficiary of the policy is the company itself and the company pays the premiums.

These plans are a great way to offset the financial loss that your company would experience with your passing away. It’s one of the few ways that you can ensure that your small business will survive, even if something tragic were to happen to you. If something happened to you and your business, your family could be stranded without a source of income, which can make an already difficult situation a lot worse.

Types Of Key Man Insurance

Term Life Insurance

Term life insurance is the most popular option because the premiums are fairly inexpensive when compared to the alternatives. Your premiums are not tax deductible, but the benefits are tax free, based on specific conditions. You can purchase term life policies for 1-30 years, and the premiums will remain the same for the life of the policy.

Whole and Universal Life Insurance

If you run a thriving business, you might choose to invest in the higher premiums available with whole or universal life insurance for key man policies. Whole life policies build cash value over time, which you can use to recoup some of the policy’s premiums when you retire. You can keep the policy going long after you retire.  However, at a cost of 5-10 times that of term life, it’s unlikely that you’ll want to keep the policy going that long.

Survivorship Life Insurance

If you’re in a partnership, you might want to consider survivorship life insurance. The policy insures both you and your associate, and pays the benefits to the surviving partner. Survivorship life insurance is cheaper than purchasing separate term life policies. If you outlive your partner, you can use the benefits to pay the deceased person’s heirs who may have some claim to the business.

What Type Of Businesses Need Key Man Insurance?

Key man insurance benefits small and medium sized businesses, but larger corporations have been known to purchase key man to insure a top executive.

If you’re in a partnership, key man insurance will let you buy out your partner’s share of the business from his/her family. Your goal as a business owner is to ensure the survival of your business, whether you’re there or not. And if the health of your company is intertwined with your persona, it’s crucial that you provide for your business when you’re not around.

How Much Key Man Insurance Do You Need?

The size of the coverage depends on the amount of revenue you generate for the business, your yearly compensation, and the cost to recruit and train someone to take your place. Continuity planning dictates that you purchase sufficient coverage to protect the contributions your successor makes.

When you’re looking to get key man insurance, there are dozens of different factors that you’ll need to consider when you’re looking to get proper key man insurance for your business. Getting an adequate sized insurance plan is going to be a long and involved process. Because there are so many aspects that you’ll need to account for when you want to protect your organization.

The biggest factor that you should consider is how much financially suffering that your business would experience if you were to pass away. If you’re one of the essential components in the organization, your business would be crippled if something tragic were to happen, which means that you should have the key man insurance protection that they need to replace you inside of the business. Earlier we mentioned some of the expenses that your business would encounter if something happened to you.

Before you apply for one of these plans, add up all of the possible expenses. While you may know that you need protection, it’s vital that you get the correct amount of insurance for your business. Add up the cost of training a new person or outsourcing any of the tasks. In most cases, an insurance professional is going to suggest that you get as much key man life insurance that you can afford. It’s better to be safe than sorry when dealing with your business.

Getting Affordable Key Man Insurance

If you’re the owner or an essential part in a small business, you know the importance of keeping all of your expenses down. There are several ways that you can ensure that you’re getting the best rates for your insurance plan. Every insurance company is different, which means that you’ll get drastically different rates depending on which company you get a quote from. It’s easy to see why it’s vital that you get dozens of quotes before you pick a plan that works best for you. Because there are thousands of companies on the market, you could spend weeks and weeks calling companies to find the best rates. Instead of wasting your time, let us do all of the hard work for you. Our insurance companies can bring all of the lowest rates directly to you. Your time is valuable, don’t waste it answering the same questions over and over.

Our independent insurance agents have years of experience working with insurance companies and give you the best rates and walk you through the whole process. We know that finding the perfect plan can be a long and difficult process but we are here to help.

Because you never know what’s going to happen tomorrow, you shouldn’t wait any longer to get the key man insurance that you, your family, and your business need. One of the worst things that could happen is for a tragedy to occur and you don’t have the insurance protection that they need.

If you have any questions about key man insurance or about the different options available to you, please contact one of our agents today and we would be happy to answer those questions and ensure that you’re getting the best policy to fit your needs.

As with any service or product, comparison shopping for term life insurance with a key life component will ensure you get the best value for your money. As an independent life insurance agency agent we can help by providing sound advice to help you find quality coverage without breaking your small business budget. You can compare term life quotes right on this page using our instant quote tool, or call us at 1-888-552-6159. 

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Liran Hirschkorn is an independent life insurance agent. His mission is to help individuals across the U.S in finding the best rates on life insurance as well as helping those that have previously been declined get approved for coverage. Liran looks forward to speaking with you about your life insurance needs.

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