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Key Person Insurance
Ensure business continuity if you lose personnel vital to your business.
What is Key Person Insurance?
In the dynamic landscape of business, certain individuals stand out due to their specialized skills, invaluable expertise, or exclusive contacts. These key individuals could range from a sales representative with deep-rooted client relationships, a technician possessing rare and essential skills, to a manager overseeing operations in a remote area. Their unique contributions are integral to the business, making their potential loss a significant risk.
To safeguard against such risks, businesses can opt for Key Person Insurance, encompassing Key Person Disability and Key Person Life Insurance. This strategic coverage offers a financial safety net, providing a tax-free cash benefit to the company if a key employee passes away or suffers a disability. Key Person insurance is a useful tool in maintaining business stability and continuity in the face of unforeseen challenges.
Replacement
Provides funds for recruiting and training a replacement, ensuring business continuity.
Manage Payments
Use insurance proceeds to pay off debt and manage creditors.
Financial Health
Bolsters confidence among lenders and employees in the company's financial stability.
Continuity
Reassure customers, employees and investors that your business will continue to operate.
Get help with your key person insurance planning.
Speak with a professional advisor who can help.
Ideal Candidates for Key Person Insurance:
Businesses reliant on individuals whose roles and contributions are irreplaceable and vital to operations.
Companies facing significant financial risks or potential closure from the loss of a key individual's input.
Employees with rare or unique knowledge, skills, or talents that are difficult to replicate.
Individuals whose unique abilities stem not just from formal education or experience, but from their personal creativity, talents, and interests.
Professionals whose expertise and intellectual capital are so crucial that their absence, due to death or disability, would lead to significant financial setbacks for the business.
Types of Key Person Insurance
Key Person Life Insurance
Offers a variety of coverage options to suit different business needs.
Selection includes both term and permanent life insurance policies.
While premiums are not tax-deductible, the business receives tax-free proceeds.
Key Person Disability Insurance
Available for individuals aged 18-55, with benefits up to approximately $15,000 per month.
Flexible coverage duration, lasting until a specified age or the insured's departure from the company.
Premiums are not tax-deductible, but the benefits are received tax-free.
How does Key Person Insurance work?
Key Person Insurance activates a crucial financial safety net if a key employee passes away or becomes disabled. This insurance provides your business with a tax-free sum, which can be strategically used to:
Efficiently recruit, hire, and train a suitable replacement.
Manage and settle debts, and address creditor concerns.
Ease lenders' worries regarding your company's financial stability.
Offer assurance to customers, employees, and investors about the continuity of business operations.
Compensate for the lost income that the key individual would have generated.
While the premiums for these policies are not tax-deductible, the benefits received are typically tax-free, ensuring a direct financial advantage for your business in challenging times.
Get in touch
Talk to an advisor who can understand your situation, answer your questions and help you build an insurance plan appropriate for your business.
Frequently asked questions
Answers to key questions about Key Person Insurance
A 'Key Person' is typically someone whose skills, knowledge, reputation, or network are crucial to a company's financial success. This can include executives, department heads, top salespeople, or anyone whose absence would significantly impact the company's revenue or operations.
Key Person Insurance is vital as it safeguards a business against the financial impact of losing a key individual due to death or total disability. It provides essential working capital to maintain operations, and covers costs associated with recruiting and training a replacement. In scenarios where the key person is the primary contributor, this insurance can be a financial lifeline, compensating the business or its owners for lost income if the business struggles to continue operating or faces closure.
The coverage period for Key Person Life Insurance varies based on the chosen policy type. Term life insurance typically offers coverage for fixed periods, such as 10 or 20 years, suitable for short to medium-term needs. On the other hand, permanent policies like universal life insurance can provide lifelong coverage, ensuring protection throughout the key person's lifetime, aligning with long-term business strategies.
The coverage period for Key Person Disability Insurance is determined by several factors outlined in the policy contract. It remains effective until one of the following occurs:
- the insured person reaches the age limit specified in the contract;
- the insured ceases active full-time employment for reasons other than total disability;
- the maximum benefit period for a single period of total disability is reached; or
- benefits are triggered under a unique policy provision (e.g. replacement expense benefit provision if you must replace a key person who is disabled)
Each of these conditions is clearly defined in the policy terms.
In the context of Key Person Disability Insurance, "total disability" is defined as a condition where, due to injury or sickness, the insured individual is under consistent and direct care of a physician and is rendered incapable of performing the essential duties of their regular occupation. This definition emphasizes the inability to carry out occupation-specific responsibilities as a result of the health condition.
Still have questions?
Please contact our office and we'll be happy to address any questions you may have.
