Losing a vital staff member could drive a smaller company into the ground, and that is why so many businesses invest in key man insurance. This type of coverage is essentially life insurance that a company takes out on the owner, founder, or one of the employees. If that individual passes away, then the company becomes the beneficiary. Here is a closer look at how this insurance works and some signs that your company might need one of these policies.
A Basic Key Man Policy
Key man insurance is commercial-grade life insurance for an individual who is vital to a company’s success. Just like all other forms of life insurance, the provider will take a close look at the individual’s to determine what the premiums should be. They must consider variables such as the employee’s age and how risky their job is. Once that data has been collected, the company that is purchasing the policy will determine how much coverage is needed to take care of any losses in the event of a death.
Who Needs This Type of Insurance?
The vast majority of these policies cover executives and managers. This type of coverage is especially important if the individual is integral to the success of a public company. Many larger corporations require their managers to have some form of insurance through their employer. Some small business owners should consider investing in one of these policies as well. If the owner passes away, then their policy will keep the business afloat until another party is able to sell it off or take over themselves. Some small business owners also apply for these policies if they only have a few key staff members that keep the company running.
Determining Who is Irreplaceable
Most business owners won’t need to insure their employees unless they have personnel who can’t be replaced for a short period of time. An example of this would be a programmer who is working on very specific software for a small company. It might take months to find and train a replacement, and that could end up costing the company hundreds of thousands of dollars. A key man policy would cover those losses while the position is being filled.