There's a danger that important institutional data will be lost if top executives are dismissed. When officers die, their estates may become involved in probate litigation, which might last a few months to several years. Businesses can continue to develop and prosper by taking advantage of a key man insurance policy. Getting a policy from reputable organizations such as MyKeyFinanceLtd would ensure financial safety in the long run.
The following are some of the most important questions to ask before obtaining a policy.
As one might imagine, the first step in purchasing key person insurance is determining whether your business actually needs it. It is a type of insurance that a business takes out on a very important person in the company. This will protect the company from losing money because that person can’t work. Should a key person pass away or become disabled, the key man insurance policy would pay out a cash benefit to help mitigate the economic loss. People who work for a company are called beneficiaries because they pay premiums and get paid back.
Small companies that rely heavily on one or two employees need key person insurance. Also, larger businesses with an important executive or employee that is impossible or extremely difficult to replace should consider taking out a key person insurance policy. More often than not, the owner or owners of a company are vital to the operation and should be protected.
Businesses can more or less select whoever they want to designate as a key person in a key person’s life or disability insurance policy. However, a business needs to select someone integral to the company’s continued existence and success. Often, a key person is responsible for generating a significant portion of the company’s revenue or providing a service that no one else can offer and is crucial to the bottom line. Some common examples of a key person include:
• Executive/Owner.
• Top Sales Professional.
• Department Manager.
• Employee with highly specialised skills.
Most organisations that have employees who would be extremely difficult, time-consuming or expensive to replace, can benefit from Key Person Life Insurance. The sudden death of key employees such as central decision-makers, chief executives, vital sales managers, employees, or highly skilled individuals with unique training makes it hard for the business to survive or may result in severe financial loss.
An employer purchases life insurance for the employee through an agent. The employer is the policy owner, pays the premium and is the beneficiary. If the individual dies, the tax-free death benefit is paid to the employer. The key man risk insurance payoff helps the company survive the blow of losing a person who makes the business work. It can be spent on finding, hiring, and training a replacement employee, replacing lost revenue, or anything else the company needs during the transition. The policy can be transferred to the departing individual as a retirement benefit or to a different key employee upon retirement. It can also buy out the key employee’s shares or interest in the company.
Look at your business and think about who is irreplaceable in the short run. Think about how the business would be affected if that employee was no longer there. Then think about how much money your business would need to survive until it could replace the key person, get them up to speed and get the business back on track. You want a keyman insurance policy that will satisfy your short-term cash needs yet fit your budget. A business continuity plan should be drawn up to outline how the business would function with the loss of these key employees.
Key person insurance can provide your business with the working capital it needs to keep operating and fund the recruitment and training of a replacement should a key person pass away or become totally disabled. If the key person is the most significant contributor to your business, your company may not be able to continue operating without that person. In that case, a key man risk insurance could compensate you for lost income should your business have to close.
This depends on the type of life insurance plan you choose for the policy. For example, term life insurance can provide coverage for 10 or 20 years. However, a keyman insurance policy with a permanent plan could provide protection for the entire lifetime of the insured person.
A key man insurance policy would protect companies from the most catastrophic scenario. But finding a good company to take care of business finances is tough. The selection procedure would be much more secure if each candidate were asked the questions above. This necessitates the obtaining of a policy that is appropriate for the company.
