• The Versia Group

Does Your Company Need Key Person Life Insurance?

Every entrepreneur should ask themselves this question: What would happen to your business should you or another key employee who is critical to the company’s success and profitability pass away unexpectedly or become disabled.

It’s not something any of us enjoys thinking about, but it’s an essential question when you own a business.

In fact, according to a survey of small businesses by the National Association of Insurance Commissioners, 71% of the organizations surveyed said their success was very dependent on one or two key people.

If you’re a business owner who is worried about the stability of your organization after the loss of a key employee, you should consider Key Person Life Insurance. This policy will provide a death benefit to a business if its owner or another significant employee passes away.

If your business decides to obtain a Key Person Life Insurance policy, your organization owns the policy, will pay the premium, and is the beneficiary. Typically, before you make the policy purchase, the employee you are placing it against must agree to the company’s purchase of this insurance.

It is worth considering this insurance option if the death of a key employee:

Could end the business or threaten its financial longevity.

If a financial institution or other creditor needs collateral for a business loan and requires the option of putting a lien on a key person policy.

If the business is a partnership and each partner wants to be able to buy out the other's shares in case of an untimely death.

Who Is a Key Employee?

Before you decide to obtain Key Person Life Insurance, it’s important to be clear on who is a key employee. It is typically considered someone whose knowledge and skills contribute significantly to your business income.

When you have identified a key person in your business, your next decision will be how much insurance you need. While there is no set formula for what value to place on the financial impact of a key employee’s death, you will need to decide on a figure.

If, for example, the employee is responsible for a certain volume of sales, the loss is the profit derived from the person’s sales, less the profit that could be expected from a replacement.

Key Person Life Insurance is an important investment consideration for any business owner. It can be the difference between financial stability and continuity and complete ruin if much of your success relies on one or two people.

If you are interested in learning more about Key Person Life Insurance, The Versia Group. We can help you decide if it is the right move for you.

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