Key Person Life Insurance

Key person insurance is a type of life insurance policy that businesses can purchase to protect their company in the event that a key employee or executive passes away unexpectedly. 

This type of insurance is also sometimes referred to as "key man insurance" or "key employee insurance".

The purpose of key person insurance is to help a business mitigate the financial impact of losing a key employee who is critical to the company's success. 

This could include an executive, a manager, a salesperson, a technical expert, or any other employee whose absence could have a significant impact on the business's bottom line.

With key person insurance, the business purchases a life insurance policy on the key employee's life, and the company is the beneficiary of the policy. 

If the key employee were to pass away, the insurance policy would pay out a death benefit to the company, which could be used to cover expenses related to finding and training a replacement, paying off debts or loans, or covering any losses due to decreased revenue or productivity.

The amount of coverage needed for a key person insurance policy varies depending on the employee's role in the company, their salary, and the financial impact their loss would have on the business. 

It's important for businesses to carefully assess their risks and determine the appropriate level of coverage needed to protect their financial interests.

Did you know that key person insurance policies can also be used to help a business secure loans or lines of credit? 

Some lenders may require a business to have key person insurance in place before they will approve a loan or credit line, especially if the key employee being insured is critical to the success of the business. 

This helps protect the lender's investment by ensuring that the business has a plan in place to mitigate the financial impact of losing a key employee. 

 John is the founder and CEO of a successful tech startup that has seen rapid growth in recent years.

John is a key figure in the company's success, as he has deep technical expertise and has built strong relationships with key partners and investors. 

The company's board of directors is concerned about what would happen if John were to unexpectedly pass away or become incapacitated, and they decide to purchase a key person insurance policy on his life.

The board determines that the policy should have a death benefit of $5 million, which would be enough to cover the costs of finding and training a replacement CEO, paying off outstanding debts and loans, and mitigating any losses due to decreased productivity or revenue.

 They also decide to include a disability rider on the policy, which would provide a benefit if John were to become unable to work due to a covered disability.

The company pays the premiums on the policy, and John undergoes a medical exam and provides the necessary information for the policy application. The policy is issued, with the company listed as the beneficiary.

A few years later, John is diagnosed with a serious illness that requires him to take a leave of absence from the company. The board is relieved that they have the key person insurance policy in place, as it provides them with a safety net in the event that John is unable to return to work. 

The disability rider on the policy pays out a benefit that allows the company to hire a temporary CEO and cover John's salary and benefits while he is on leave.

Unfortunately, John's condition worsens, and he passes away a few months later. The key person insurance policy pays out the $5 million death benefit to the company, which uses the funds to pay off outstanding debts and loans and cover the costs of finding and training a new CEO. 

The policy helps the company weather the loss of John and ensures that they are able to continue operating successfully despite the loss of their key leader.