Life Insurance – Key Person Life Insurance
Key Person Life Insurance is simply life insurance taken out on an individual (or individuals) in a business who is (are) vital to the business’ operation. If the key person were to die unexpectedly, the business would either sustain a substantial financial loss or suffer financially to the point of going out of business.
For more information on key-person life insurance, please contact our office:
Phone: 513-891-9888
Email: tracy@mccarthystevenot.com
A key person can be an owner, a partner, a salesperson, a business manager, or any other individual upon which a company strongly relies. With key person life insurance, a company takes out a life insurance policy on the individual employee and is the beneficiary of the policy. Funds collected at death may be used by the company to hire a replacement employee, pay bills until a replacement employee is hired, pay off debt, pay off investing partners, etc. In some cases, a key person life insurance policy may be purchased with the idea of providing a smooth shut-down of a company. In such case, a key person policy can provide the funds needed for severance packages and to meet liabilities such as leases or other short term contract liabilities until the company closes.
Funding Key Person Life Insurance
Key person insurance today is usually funded with level term life insurance. Level term life policies are generally very affordable and guarantee a level premium for a certain amount of time based on the contract. Contract periods for level term policies may be – five, ten, fifteen or twenty year periods, etc. After the level premium period expires, premiums tend to escalate rapidly so be careful to choose an adequate policy duration. Because level term life insurance is so economical, it is easier to purchase a enough insurance to cover the potential losses due to the death of a key employee.
Due to the fact that key person life insurance proceeds are paid to the employer upon the death of a key employee, the individual insured’s personal need for life insurance is not considered. Instead, insurable interest is determined only by the insured’s value to the employer. An individual key employee should purchase separate life insurance to meet any personal family needs or to replace his or her personal income.
