An often overlooked form of insurance that’s been around as long as banks have been lending money to businesses is key-person insurance. If you own a business or have investors, key-person insurance could be one of the most important keys to your business longevity.

Key-person insurance is the same as ordinary life insurance, except that the employer buys, owns, and is the beneficiary of the policy. Most companies have at least one employee who is key to the success of the business. Usually it’s the owner, a partner, a majority stockholder, or someone with a high level of expertise.  The loss or death of that person could mean financial ruin for the company.

Premiums for key-person insurance are based on a variety of factors, including age, physical condition, and health history of the key person, as well as the amount of coverage. Before purchasing key-person life insurance, a business owner should answer the following:

* What is the value of your key employees? It may be difficult to estimate the value of an irreplaceable employee, but it is a valuation that is necessary to determine if you need to purchase key-person insurance and the amount of coverage you’ll need. Consider factors such as projects that would be lost if the employee were no longer with the company, the amount of sales generated by the key employee, and the costs associated with replacing the employee.

* Is separate key-person insurance necessary? Credit insurance is one way to cover outstanding loans and debts. If you already have a credit-insurance policy, key-person insurance could be superfluous.

* Do you have a business-continuation plan? Creating a plan that outlines how your business will survive a disaster is key in determining what type of insurance protection you need. An insurer will require that you have a business-continuation plan before they’ll sell you key-person insurance.

Related posts

• No related posts.