key person insurance

What happens to your business if the owner or a key member of staff dies? Key Person policies are life insurance policies taken out by the business on its most valuable members.

What is Key Person Insurance?

A Key Person policy is a Life Insurance policy that is taken out on the owner of the business or its most important employees. The policy premiums are paid by the business and if a covered individual should die then the business receives the benefits stated in the policy. Additional Riders can be purchased to extend the coverage to include if a named person was to become disabled or unable to work for an extended period of time.

Does a Business need Key Person Insurance?

To determine if a business needs Key Person coverage, who should be covered and how much is needed requires the business to evaluate itself and its operating practices. Here are some scenario's to consider.

Small Business Owner

If the owner of a small business was to die, then what happens to the company? If there is no successor to the business and upon the owners death the business closes then a policy should be large enough to cover any debts the company may have and cover the associated costs with winding up the business.

Top Sales Person

If you are insuring key employees then you need to look at the value each employee brings to the table. For example, the loss of the top sales person, the business will not only lose the revenue they generate but will also incur costs associated with recruiting and training a replacement.

Specialized Personnel

Not every employee is equal. Does your business have any highly specialized personnel? These could be very hard to replace. It could take a considerable amount of time to recruit. Funds to cover these recruitment costs should be planned for as well as the financial impact their departure may have on the company.

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