Often, protecting a business means also protecting those close to it. In many cases, small and large businesses have a driving force behind their success. These key individuals may be a brilliant CEO, an executive chef, a site supervisor, a manager, or a masterful strategist. Now imagine the devastating impact if that key individual were suddenly no longer able to contribute due to an unexpected illness, accident, or even untimely death. The financial repercussions could be crippling, undermining everything the business has worked so hard to build.
In the event of a sudden loss or injury of key personnel, a business should have a continuity plan as part of a proper risk management strategy. For businesses where a key person whose skills or expertise are highly valued and whose absence would cause the company to suffer, key person insurance can act as a safety net against significant financial loss.
What is key person insurance?
In simple terms, key person insurance is an insurance policy on specific individuals belonging to a business. It is a policy that the business purchases on the life of the indispensable team member. Its purpose is to protect a business against financial losses that may result from the death or serious injury of a key employee or executive. These key individuals play a crucial role in the overall success and continuity of the organization, and if the individual can no longer viably contribute to the organization, it can help the business navigate through the challenges of finding a replacement, maintaining client relationships, and covering unexpected expenses throughout the transition.
How does key person insurance work?
Key person insurance is an insurance policy a business purchases on a pivotal employee. The business owns and pays for the premiums of the policy. In the event of the key person’s death, disability, or illness, the business receives a non-taxable payout to help cover any potential financial losses or setbacks.
FAQ
What kind of employee is a key person?
A key person is an employee whose skills or intellectual capital are so vital to the success of the business that it would suffer incredible financial loss as a result of death, disability, or illness. Often, this individual has incredibly specialized skills or knowledge few, if any, can reproduce.
What businesses should consider key person insurance?
Any business that deems any individual a significant contributor to the company and without their involvement, would struggle to continue regular operations. From small companies all the way to large enterprises, no business is too small for a key person insurance policy.
