When Do You Need Key Person Insurance?
Properly insuring your business involves investing in a number of coverages. You need to be covered for various liability issues, your inventory, workman's compensation, and various other potential problems. Another policy you should consider is key person insurance. These policies protect your business if a person vital to your company's success dies, an unfortunate and yet common occurrence.
A key person insurance policy is essentially a life insurance policy on an employee that pays out to the company in case of the employee's death. The company pays the premiums and is responsible for all aspects of maintaining the policy. The company must have the permission of the employee before they can take this step, however.
You should consider taking out this type of policy if your company's success is largely dependent on certain employees. For instance, if your small business would fold if the owner died suddenly, a key person policy is a good investment. A sign company with one main designer would want to cover that person. A small law firm with two partners would need insurance on those two key personnel. Basically, you should cover any person whose loss would seriously harm your company.
When you purchase this type of policy, you can use the payout to cover the expense of recruiting and hiring a replacement employee. Often, you will simply need the money to pay bills during the period immediately following the key person's loss. In some instances, the key person may have held a large portion of stock that needs to be purchased to protect the company's future.
For some businesses, this type of policy can help you retain other employees as well. If you have a small company, the loss of uninsured key personnel can lead to the company closing. Savvy employees hesitate to sign on to work with a company that is vulnerable to this type of failure. Purchasing key person insurance is simply a sound business move for many companies.
If your company does not have this type of insurance, you need to contact an insurance agent as soon as possible. Too often, tragedy strikes completely without warning, leaving your company in a vulnerable position. In fact, you may want to consider a key person disability policy as well. If your business would be seriously harmed by the loss of certain key personnel, you cannot afford to overlook key person insurance.