In most companies, continuous success is often dependent upon a handful of key people. These business owners or employees possess valuable knowledge, skills, and/or experience that directly impact the bottom line, growth, and culture of the business.   Regardless of the size or type of business, an impact can be felt by the loss of a key owner or employee but steps can be taken to reduce the associated risks.

Key person insurance, also referred to as key man insurance or key employee insurance, offers companies protection in the event of an untimely death or disability of a top salesperson, senior executive, or business owner. Just imagine the devastating impact a business would suffer from the loss of someone who has fostered unique relationships with creditors and customers, or had a major role in generating profits. Companies typically use the financial payouts from these polices to cover a decrease in revenue and costs associated with searching and hiring an adequate replacement.

Key Person Disability Insurance
Illness or injury can strike at any time. With this type of policy, the business pays the total premium and is the beneficiary. If the key employee becomes totally disabled (unable to perform the substantial and material duties of his/her key person occupation and not working in any other occupation which is comparable by duties and/or earnings for the business), the business receives the policy benefits, which are generally tax-free. A common, lump-sum payout would be 2x the key person’s salary.

Key Person Life Insurance
The business obtains a life insurance policy on the life of the key person. The business is both the owner and beneficiary of this policy and will consequently receive the entire death benefit. A common, lump-sum payout would be 5x – 10x the key person’s salary.

If someone is identified as a “key person” within the organization, it makes sense to obtain both life and disability to guard against the obvious financial downfalls that typically follow injury or death. The application process and costs are similar to that of obtaining a personal life or disability policy. However, it is noteworthy that the key person does not have any interest in either of these policies, nor does his/her family receive any benefit from it when injury or death occurs.

Unfortunately, the cost to replace this intangible human asset is often not thought of until it’s too late even though the cost of securing key person insurance policies is relatively small when you compare the benefits received should a key person die or become totally

We specialize in helping businesses with their insurance protection, including their Key Man risk. Contact us to review your risk to identify the policy that fills your needs.