There are many types of insurance out there, and they all have different applications. You generally want to make sure that the most important assets of your company — the ones the company can’t function without — are insured. This will help make sure that if something unfortunate happens to one of those assets, your company will be able to survive and maybe even recover. But what happens when the most important asset your company has isn’t a location or a machine, but an individual?
Well, that’s what key person insurance is for. These policies can help you stay afloat if something bad happens to one of your key employees.
How does it work?
Key person insurance bears a lot of similarity to life insurance, with one key difference. A life insurance policy is meant to protect the deceased person’s dependents, who receive a payout in order to ensure their financial stability after the insured person passed away. Key person insurance is similar, but instead of people getting the payout, it goes to the company that employed the deceased.
These aren’t mutually exclusive. The same person can have both a life insurance policy and a key person insurance policy taken in their name. In both cases the person being insured must provide written consent, so you don’t have to worry about your company insuring you without you knowing.
Like life insurance, many key person insurance policies also provide living benefits. The details of these benefits depend on the fine print in any given policy, but in general terms, it’s not uncommon for policies to payout a lump sum if the insured employee suffers a heart attack, is diagnosed with cancer, or is given less than a year to live due to a terminal diagnosis.
These living benefits make it easier for the company to deal with an employee’s reduced ability to work and makes offering an early retirement a decision that can be made on the basis of human factors, instead of financial ones.
Who needs key person insurance?
Key person insurance policies cover specific individuals, but they don’t belong to one person. These policies belong to the company itself, and the company pays the premiums on these policies.
As to whether or not your company needs this type of insurance, that depends on how important all the individual members of your company are. If the company founder of any member of the company’s management passes away tomorrow, how hard will it be to keep the business going?
If your operation is heavily reliant on the talent, reputation, or financial aid of one individual, then having a key person insurance policy is a must. It’ll help make sure your business can survive an unfortunate tragedy. Or if that is not possible, the policy can at least make sure the business closes its operations smoothly. The business owner can use the insurance money to pay employees and cover any outstanding debts before closing the business down.Finally, key person insurance is also valuable for partnerships. If one of the company’s partners dies, the business can use the payout to buyback the partner’s shares. That helps keep the company stable. If you’d like to learn more about this type of insurance, visit https://www.insurancehero.org.uk/types/key-person-insurance-policies-explained.html.