Key Person Insurance, commonly referred to as Key Man Insurance or Buy/Sell Insurance, is essentially life insurance taken out by the business to protect them in the event of death or disability of a key executive.
Why Key Person Insurance?
There are many good reasons to consider Key Person coverage for your business. Here are just a few:
- It's a requirement. Most public and private institutions will require key person coverage if loans or credit are extended to the business. They want to be sure that the business will continue or that their debts will be covered in the event of losing a key executive.
- Buy / Sell Provisions. If there is a death of a key executive/owner/partner there will likely be a contract addressing how to handle the redemption of the departing member’s shares. Life insurance can easily and inexpensively provide this funding mechanism. We often see buy/sell contracts that have this wording, but have no means of funding without selling all of a portion of the business in the event of a death of a key owner/executive.
- Your business may not be able to continue without key individuals. Businesses can use the funds to hire replacement professionals, but many times the business cannot continue without key people.
The most common type of policy placed for Key Person Insurance is term life as it is less expensive than Universal or Variable life insurance policies. Term Insurance can also be purchased for a set period of time. For example, if you have an executive at age 50 that is in need of coverage, the business can purchase a 20 year term policy assuming that the executive will retire on or before he or she reaches age 70.
Who can be a Key Person?
Not just directors, officers or owners of business can be candidates for Key Person coverage. Many businesses often have key sales people, partners, project managers, or someone that has a particular irreplaceable skill to the business.
Is Key Person Insurance expensive?
The answer is, not typically... Term Life Insurance is very affordable. The policies do not build value like other forms of life insurance so it simply pays the face value if there is a loss. Because you can choose a term like 10 to 30 years there is more flexibility on the premium. A young executive in good health could generate premiums as little as $400 per year for $500,000 in coverage. The term and amount of coverage will differ from key person and from business to business. Please contact us to learn more or inquire about this "Key Coverage." We have access to the top carriers to protect your top executives.