We all know that everyone in the company has a role or a part to play. However, there are those employees that are hard to replace. That is why it is sometimes prudent to have an insurance policy that will keep the business intact even without such employees.
A Key Person Life Insurance Policy can be briefly said to be a life insurance policy that a company takes on its most valuable employees. It is a policy that can also include the rider in the company in case of any disability or accident that occurs to him.
This policy helps to safeguard businesses in the eventuality that the key employee is disabled or dies.
What makes someone a key person?
This is when a business or company on the employees it considers indispensable. This person is sometimes the business owner or someone in a highly specialized role within the organization. These are people who could sometimes be expensive to replace because losing them would be like operating without a business.
Some business owners may decide to protect family members who will inherit the business at one point in time. Who should you consult when you find yourself in such a situation?
Who should be considered for Key Person Life Insurance Policy?
A business can purchase insurance on any person for who it wants. Such examples may include the following:
- An employer and his employees.
- A lending institution or bank.
- Business partners.
- Vendors and their customers.
Reasons for purchasing key person insurance
There are a few reasons why someone may opt for purchasing a life or disability insurance and these include:-
- To maintain revenue
There may be situations where the missing person is a contributor to the sales and cash flow of the business. The policy will ensure that sufficient funds are available until such revenue is replaced.
- Ensuring that there is cash flow
Most companies such as mortgage and finance mostly depend on a continuous source of short term loans. Therefore any form of hiccup will eventually affect how things are done.
- Funding recruitment
Sometimes hiring and training of a key employee can be time-consuming and expensive. Tension can arise in the board especially when looking for the right person to replace the one who just left.
- Protecting Assets
The missing person or the deceased person could sometimes be a key management player who is involved in sales, production or financial management. These may be a great concern to the business especially moving forward.
This policy is capable to sealing such loopholes that may arise in the future with the company while still being able to meets its obligations in the event of any tragic happening.
- Protecting equity owners
The insured individual is sometimes the owner of the business whose family will most likely inherit the business. So the insurance owned by the company can provide the funds to pay the family.
When the insurance proceeds are not there then the remaining owners may be forced to liquidate the business.