For All Your Staff Executives Employee who are above S.V.B There are many reasons why a company should buy key man insurance. A key man, or key person, in a business is one who is so important that the loss or disability of that person would drastically affect the business to such an extent the business may cease to exist. This could be an owner, a partner, a manager, a top salesperson, or a creative person, among others. Usually it will be one of the top level persons in an organization whose contribution to the success of the business is essential. Although there is no legal definition of the term, key person insurance is an insurance policy that will attempt to compensate for any financial loss that might occur due to the death or disability of the insured person. The goal is for the policy to help the business to continue to operate and survive the loss of the key person. It does attempt to place a monetary value or sum on the work done for the company by that person, and the financial gains having that person actively working would bring in to the company. A key man insurance policy usually is taken out for a period of ten to twenty years, but cannot outlive the expected longevity of that person with the company. It could provide between $500,000 to $5 million dollars benefit, and cost from hundreds to thousands yearly. The policy is designed to cover any costs for replacement personnel or training a new person, lost sales or income the key person may have brought in, loss of expertise, and loss of expansion opportunities. It would include damages incurred from project cancellations, and protection for shareholders or partners. Another item covered would be any business loan guarantees. If a company is working with a bank or venture capitalists, they may require that the business obtain key man insurance. If a business encounters a situation where a key person is lost to the company, by disease, accident, or death, the effects upon the business can be devastating, and include termination of the business. For example, if a partner and key creative person suddenly drops dead at work, the entire company, even a small company, is affected by that loss of that key person. The initial shock becomes concern over loss of business. The company principals may want to hide the death from clients until they can announce the problem in such a manner as to not shake client confidence, and thus lose business. Then, they must deal with trying to replace the key person, who may in fact be irreplaceable. The company could quickly go out of business without recourse if there is no key man insurance. Having insurance coverage is a prudent thing to do, and the costs should be included in any budget for a business that wants to remain successful despite possible traumatic events.
Posted on: Wed, 14 Aug 2013 20:58:02 +0000
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