What Is Key Man Life Insurance? How It Works & Costs!

As one of the over 30 million small business owners, it’s natural to worry about your co-workers’ health for more reasons than one.

On the financial side, should one of your co-founders or employees unexpectedly passes away, you could be left without a key member of your team. 

Key person life insurance is one way to lessen the burden of that loss and in this post we will discuss how key man life insurance works exactly and it’s costs.

What Is Key Man Life Insurance?Key man life insurance is a common form of corporate-owned life insurance (COLI). It’s also commonly known as key employee insurance or key person insurance.  Essentially, you take out a life insurance policy (or, in some cases, disability insurance) on essential members of your organization.

What Is The Purpose Of Key Person Insurance? The purpose of key person insurance is to protect your company if one of your foremost employees—known as a ‘key person’ in the policy—dies.  

You can take out a key person policy on any member of your team—even yourself. Those members become the insured parties, but your company is the beneficiary, as opposed to a loved one. Your company also owns and pays for the policy—not the insured party. 

This type of insurance is designed to prevent financial loss while you seek or train a replacement for the lost employee. 

THE SIMPLY INSURANCE WAY

Term Life Insurance made easy.

Agents not required.
Get quotes and sign up online without talking to an agent. But, we are here if you need us.

Unbiased, expert advice.
Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.

Coverage in minutes.
You can get term life insurance coverage within minutes of getting your quotes and applying.

What Is The Average Cost of Key Man Life Insurance?The average cost of key person insurance is $816 per year or $68 per month. You’ll need to purchase a separate key person policy for each of your key employees. Also bear in mind that any premiums you pay on key person life insurance plans are not tax-deductible on federal income taxes, per the IRS.

When Would You Need Key Man Life Insurance?Your business depends on your employees. Your company wouldn’t exist without them—especially your key employees. Think of the person that your company relies upon the most to keep afloat. Someone that you invested time—perhaps even years—into training that holds a high level of responsibility.

Ask yourself:

If this person were no longer in my company, would I be able to keep my business running? Would my clients and customers seek the services of rival companies?Do I have someone who could take over their role right away?How Can I Get A Quick Key Person Life Insurance Quote?The fastest way to get a quote will be to use our quote tool below.

Get An Instant Life Insurance Quote 

Can I Get Term Life Insurance Quotes Online? Yes; the fastest way to get term life insurance quotes without personal information or an agent calling is by using the free quote form to the right: 

Average Cost Of Life Insurance By State The national average life insurance premium by state is around $631 per year or about $53 per month, you should definitely to do your due diligence before you decide on how much life insurance you need or which company to choose.

Remember, it takes a lot of effort and money to find the right replacement for such a key person. During that time, you risk losing significant profit or even your business.

If you have someone like that in your company, then you have a key employee—and if you have a key employee, that’s when your business likely needs key man insurance.

Many banks also require that your company purchase key person insurance to receive approval for loans or credit.

Key Man Insurance Vs. SMB Life InsuranceYou may be wondering, “What’s the difference between key man insurance and small business life insurance?”  

Simply put, key man insurance deals primarily with death benefits, whereas small business insurance deals with a greater variety of risks. Small businesses deal with:

Rival companies poaching employeesEmployees becoming disabled or unable to work due to other events Relatives of deceased employees wanting to sell their stake in the companySmall business life insurance offers some potential solutions to these issues, such as:

Executive benefits for top employees, including life insuranceKey person insurance for disabilityThe ability to liquidate business assets to protect personal assetsA buy/sell agreement, where joint business partners purchase insurance on each otherEssentially, key person insurance is one form of small business life insurance. It’s up to you to assess whether your company faces additional employee-related challenges.

If so, it may be worth considering a more comprehensive small business life insurance policy or multiple policies.

How Much Coverage Do You Need?In general, there’s no set rule for how much key man life insurance coverage you need. 

After all, it’s hard to put an exact dollar amount on a person’s value to your company. 

Life insurance companies may make this easier by providing pre-selected formulas.

If they don’t, you’ll want to look through your records and see how much revenue the employee has generated for the company, such as in total sales, positive customer reviews, and clients secured.

You’re also required to get the employee’s consent before purchasing key person insurance due to the 2006 Pension Protection Act, which mandates employers to inform workers of life insurance policies under their name.

When you speak with your employee, that’s a good time to discuss their value to the company.

Life Insurance Coverage Made SimpleCompare Free Quotes From Ethos & Get a Policy in Minutes.

Taking ActionIn the aftermath of an employee’s death, you may be emotionally devastated and unable to deal with the sudden financial hardship resulting from the loss of a crucial worker.

Planning for your company’s financial future will leave you prepared in case of a tragic loss.

If you need a key person life insurance policy you can click here or click on any of the above buttons to get immediate quotes and coverage.

Article Source

Information contained on this page is provided by an independent third-party content provider. This website make no warranties or representations in connection therewith. If you are affiliated with this page and would like it removed please contact editor @producerpress.com