Key Man Insurance
Protect Your Company With Key Man Insurance
Key man insurance is a life insurance policy taken out by the business as a beneficiary in the event of death of an insured employee. Some organizations also purchase disability insurance for key personnel.
The insurance policy works by paying the business in the event of the death or disability of a person who is very important to the business and their absence would adversely affect the business.
Key man life insurance or disability insurance
These types of insuance are particularly important in sole proprietorships, partnerships and start up companies.
For a sole proprietorship:
Key man insurance allows the family to pay off any loans or allow time to sell the business. In many cases there are loans, leases and other obligations that must be met. Depending on the organizational structure, the spouse might be liable for the debts.
With a partnership:
Key man insurance allows the surviving partner to restructure and buy out the deceased partner's interest from his or her family.
Startups are usually dependent on one or two key people whose absence would be deeply felt. Proceeds from key man insurance allows the company to move along, hire someone else or set the company for sale.
Amount of Insurance:
Depending on the situation, key man insurance is usually purchased in large amounts as a term life insurance policy or individual disability insurance. For larger organizations, key man insurance may be purchased with one policy covering several key people and is a cheaper way to insure more than one key person.