You spend a great deal of time and money in getting key employees to the point where their skill and experience truly pays off for your business. So, what happens if these individuals become permanently disabled or pass away? The loss of these key people could disrupt the overall productivity and flow of your business thereby having a negative effect on your profitability. This is where key-person insurance comes into play. It presents a means of protecting your business’s growth.
You can almost always tell what sort of business one is by looking at the success and effectiveness of its employees. A business with highly trained and experienced employees will be successful in turn. When those key employees are lost however the company may quickly find itself scrambling to keep from sliding backward. Key-person insurance helps by covering the loss of such an individual in order to prevent such loss. Typically it provides funds on a monthly schedule or in a lump sum. These funds are allocated to cover things such as acquisition, employment and training of a replacement for the individual that was lost, restoration of lost profits that are tied directly to the key-person, and repayment of any debt tied directly to the lost key-person.
Whether the key person is upper management, high level programmer, or holds another high priority position, the company itself owns the insurance policy and is responsible for paying all premiums. As such, the company becomes the beneficiary once the key individual becomes disabled or dies thus receiving the whole death benefit. Keep in mind that the premiums are not tax deductible, but are usually free from any corporate tax liability.
How Much Coverage Is Enough?
The overall amount of insurance coverage that should be purchased depends heavily on a couple factors. Mainly, the size of the company, the amount of outstanding debt that is owed to lenders, and the amount of loss that will be faced while identifying and hiring adequate replacement manpower. Policies can run around $50000 to $1 million and will go up from there. As with any other life insurance, the individual’s age, physical and mental health, and other such personal info can all play a role in the cost of the policy. Even the structure of the company can play a part in determining the cost of the premiums. While it is not exactly possible to know just how much loss will be incurred when a key-person leaves via death or disability, insurance companies have a variety of methods for arriving at a close approximation of the potential for loss.
Businesses are built through the hard work and dedication of skilled and dedicated employees. The loss of these individuals can be devastating to their employers. Key-person insurance can help to prevent or cover the loss that comes from the death or disability of a key employee.
Here at The Hoffman Agency, we realize that loss is an unfortunate part of doing business. For more information on how key-person insurance can benefit your business by reducing or negating loss, please contact us today.