Which employees should you have a key person life insurance policy written on?

By | October 18, 2008

Key Man Life Insurance will supply your business with cash when you need it the most? A key man life insurance is exactly what the title says it is, it protects the life or lives of key employees that work for your organization. A Key man also could mean the business owner as well as a valued employee.

This type of policy helps protect the companies owner and the other employees in case of the death of the highly valued employee or owner. In a number of scenarios the key person being insured most likely might take over the business so it is a good idea to plan wisely for the future.

The business buys a term life insurance policy on the life of the key employee or possibly a cash value policy. the company will fund the policy and they will also own and be the beneficiary. Upon the death of the covered employee the company will receive the death benefit proceeds from the policy. The death benefit is usually used to pay bills, search for a new highly qualified employee, help supply needed cash or as a benefit for the family of your key employee.

How do you know if you need this type of policy or plan to help protect your business?

Ask yourself the following questions to help determine if this type of coverage makes sense for your organization and situation.

  • How would your company be affected if a key person died suddenly or unexpectedly?
  • How would your organization be affected by the loss of one or more of your key people?
  • How would your clients react to the death of the key employee, what if you lost your valued employee to your competition. would your current clients follow your key person?

If you answered yes to the above you probably need to seriously consider purchasing a key man life policy on one of your key employees.

How does Key Person Insurance help you or the company when the policy is needed? First it can help with interrupted or lost cash flow, loss of clients to a competitor, negative impact on your credit and last but not least provides capital to attract and hire a qualified replacement.

What are the advantages of a Key Man Life Insurance policy? Business gets to select which employees are included in the plan. Life insurance proceeds are distributed income tax free to the business (typically). Creditors and clients can relax that the continuity of the business is intact. You dont even need to submit this plan to the IRS for approval and the plans are very easy to set up.

As you have read the above post Key Man Life Insurance could end up saving your business, practice or farm.  Please see more resources that I have researched for your reference…

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HIDDEN TRAPS ABOUND IN THE AREA OF EMPLOYER OWNED LIFE INSURANCE – There are many legitimate uses of EOLI, such as key-man life insurance to assist a business in weathering the loss of a key employee. Section101(j) provides an exception for many EOLI policies (essentially, an exception to an exception) …

Key Man Insurance | Round Table Life Insurance – Myself and a long time friend are partners in a manufacturing operation in the midwest The business has turned a good return over the past 10 years and we ve begun to wonder what would happen if one of us were to perish We are both very …

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