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Key-Person Life Insurance
Does your company have one or more employees who are key to the success of your business? Most likely you do, whether it is the owner, a partner, majority stockholder, or someone with a high level of expertise. Their loss or death could mean financial ruin for the company.
Key-person insurance protects the company’s solvency should such an event occur. Protecting the company not only makes good business sense, but some lenders and investors require it as a way to protect their loans and investments. Usually the business owns the policy, pays the premiums, and is the beneficiary. Most often it is a permanent life insurance policy, but term life may also be used.
Premiums are based on a variety of factors, including age, physical condition, health history, and the amount of coverage. In addition, the business should:
· Estimate the value of key employees. Consider factors such as projects which would be lost, amount of lost sales, or costs associated with replacing the employee.
· Have a business continuation plan. Outline how your business will survive a disaster is often required by insurers before they can sell key-person insurance.
From Allbusiness.com, “The Value of Key-Person Life Insurance.”