Key Person Life Insurance

How Key Person Life Insurance Adds Business Value

Does the success of your business depend upon one or more essential people that your company can’t afford to lose? Key person life insurance protects businesses against losing critical employees, executives, and owners. The life insurance policy can also serve as a valuable asset while covered individuals remain productive at work. Discover how key man life insurance can help you manage risks, ensure business continuity, add value, and improve retention.

What is Key Person Life Insurance?

Key man life insurance can serve many functions. Businesses primarily rely on these policies to manage the risk of losing indispensable people because of an unexpected death. The business pays premiums and names itself the policy’s beneficiary. In turn, the company can use the death benefit payment to help recover financially from losing key people.

Who does key person life insurance cover? Small companies often purchase coverage for business owners, partners, and essential employees. Larger corporations may buy policies to cover key executives or hard-to-find technical talent. Either way, the proceeds from the death benefit can help the company buy time to replace the covered person and make up for any losses that might occur after an unexpected death.
The way businesses might use the death benefit from this type of policy differs, depending upon the company’s unique needs and structure. For instance:

  • A corporation may need to invest in recruiting. hiring. and training a replacement after the death of an experienced board member.
  • Partnerships could use the cash to buy a deceased partner’s shares or absorb the share’s value back into the company for future growth.
  • Sometimes, a smaller business with just one owner might use the money to pay debts, offer employees severance pay, transfer remaining assets to heirs, and close down.


How Does Key Person Life Insurance Add Value to Businesses?

Any business that would suffer losses if an important employee or owner passed away should consider the benefits of key person life insurance. Even so, managing the risk of losing a key employee or owner is only one benefit this coverage offers. Besides the security provided by a cash death benefit, the policy can offer many other benefits while the insured person still lives and works.

Not only can these policies help protect businesses, they can also provide essential benefits for owners, partners, and employees. For example:

  • When a company purchases insurance for employees, it demonstrates that they value that individual’s contributions. Some businesses also add the employee’s family as additional beneficiaries, which serves as an employee benefit. These benefits can help improve morale and retention.
  • Businesses can use key person policies to demonstrate their attention to risk management. This protection works in the company’s favor when it needs financing from banks and investors.
  • As businesses pay premiums, universal and whole life policies will appreciate. Companies could choose to use these assets as collateral or as a source of loans and withdrawals.
  • Businesses may also have a chance to add disability or critical illness insurance to these policies, offering them more protection and an opportunity to provide these benefits to covered people.

What kind of life insurance policy covers vital people in a company? Term life insurance policies will offer the cheapest option. At the same time, cash-value policies, like whole or universal life insurance, also serve as an appreciating asset. If the business needs cash or the owner decides to retire, the company could borrow against or sell a cash value policy for funds. Plus, term life will expire when the contract ends, and cash-value life insurance can offer lifetime protection.
Key person policies can help protect and add value to businesses in several ways. At the same time, the best policy depends upon your business goals and vision for the future. Experienced business insurance agents will help you choose the best solutions. Contact the Insurance Hub to speak with an experienced, licensed agent about your concerns and plans for your company.


Check Out Our Other Services!

Contact The Insurance Hub Today!