How key person insurance can Protect your Business from Key employee loss

A business requires methodical planning and systemic efforts by its manpower resources i.e. key employees to take it through stressing times and upheavals. The exit of valuable employees can cause severe loopholes in the business which may result in loss of momentum and revenue to the business. Thus, for a business to flourish, it is essential that it does not get bereft of its key employees. When a business unexpectedly losses an indispensable employee, a void is created, covering of which involves both time and money. To protect one’s business from the financial losses, which the departure of a key employee may bring to it, a business owner has only one umbrella to seek shelter under being termed as Key Person Insurance.

business protection insurance
Source: biz new orleans

Here is a good read on how to Protect Against Losing Key Employees

How to establish who a key employee is?

There are fewer business owners who actually consider the regular impacts of losing a key employee. It is more or less like considering the loss in case of a natural disaster. A key employee is a person whose sudden exit from the business may cause it to become numb.

How can the business be protected against the exit of a key employee?

To protect one’s business from the financial losses, which the departure of a key employee may bring to it, a business owner has umbrellas to seek shelter under, termed as ‘Key Person Insurance’ and ‘Key Person Disability Income.

key person cover
Source: yes financial

What is Key Person Insurance?

Key person insurance is a kind of life insurance policy which business owners invest in, on their key employee. The employee has nothing to do with it. Rather it is owned by the business and all premiums are paid by the business. In case of a key employee’s death or disablement, the advantage of the insurance policy is claimed by or extended to the business.

How can Key Person Insurance be utilized by the business?

In case of a key employee serving the business until he retires, the benefit of the insurance policy is transferred to him. In case the employee dies or has to leave the job owing to a sudden contingency, the business utilizes the amount received by the insurance to serve the business.

key person insurance policy
Source: weber messick

Several purposes for which the funds of the insurance are used may be to engage a new employee and train him accordingly, to cover the losses created by lack of sales, to redeem stocks and to provide the employee’s family death benefit.  Moreover, the insurance amount also helps to solidify the business finances during these unsettling times.

How are the costs for Key Person Insurance calculated?

The calculation of how much should the insurance policy be for involves multiple contingent factors. One such factor is the determination of the amount which can be easily afforded by the business. Another is the calculation of the financial loss which the business is likely to sustain in case of key employee’s sudden departure.

keyman insurance policy
Source: edzona

Read more on related content here: Valuable Protection for the Future Success of Your Business

Thus, to ensure that the continuity of the business is not disturbed, it is vital that business owners understand how important they themselves are for their business and their exit might affect it. It is also important that business owners evaluate the vulnerability a business may be put into when any other key employee is forced to leave the services owing to natural contingency.

Key employees are the most valuable assets of a business, and any loss which the business may suffer because of their untimely death or disability, needs to be protected against. Do you think your business needs professional Guidance when it comes to key person insurance? Contact our service professionals at Flagship Financial

Key Person Insurance – What it Is and Why Your Business Needs It

Every small business has one or two key employees that really drive the success of the company. Whether it’s through sales relationships, intellectual capital, or specialized skills – these people make the company work. Losing a key person to unexpected death or trauma could be a devastating blow to the life of your company. That’s why your business needs Key Person Insurance.

key person insurance

Key Person Insurance is simply a life insurance policy purchased by the business for a key employee.

Here’s how it works:

  • Identify the key person your company simply can’t live without for the long term. In many cases, it’s the owner who keeps everything together – from keeping books to customer relationships, to managing key employees.
  • The business then takes out a life insurance plan on that key employee, paying the monthly premiums as the beneficiary.
  • In the event of the unexpected loss of this key employee, the Key Person Insurance will kick in, helping the company survive the loss of this key person.
  • The business can use the insurance proceeds to cover expenses while it finds a replacement person, pay off debts, pay severance to employees, distribute to investors, or close the business down in an orderly fashion.
key person life insurance
Source: paradigm life

If you are a sole proprietorship or the sole owner/employee of your business, you won’t need key person insurance. Traditional life insurance will work to cover your family/beneficiaries.

Key Person Insurance is vital for companies with multiple owners/employees that depend heavily on a key individual. Having Key Person Insurance can be the difference between the immediate death of a company and the company surviving and recovering from an unexpected loss of a key employee.

If your business depends heavily on a key employee, you need to consider Key Person Insurance.