Affordable Life USA has focused on the life insurance needs of small business owners for over 25 years. One of the most popular types of life insurance policies we sell to successful executives is key person life insurance, which is also referred to as key man life insurance.
What is Key Person Life Insurance
Key man life insurance is a policy that provides a business much needed capital in the form of a death benefit, if a key person should die.
The infusion of liquids funds help the surviving business partners keep the business running by paying employees, vendors, and making loan payments.
Most organizations realize that operations would quickly fall apart if a partner, owner, or a key person should pass away suddenly.
So, a key man life insurance policy is purchased by the company on the life of the key person.
The company is normally the policy owner, beneficiary, and premium payer.
Who is a candidate for Key Man Coverage?
- Owner – The person who started the company and is still working in the day to day operations of the business.
- Sales Executive – They have valuable contacts and have the responsibility of attracting and keeping key customers.
- Technical Employee – A person with unique knowledge of the companies operations which are hard to replace or duplicate without a lot of training.
- Director/Investor – They have guaranteed loans or provided startup capital to the company.
The proper amount of key man coverage will depend on the economic value the key person has to the company.
We often use the recommendation of the business owner or the advice their accountant to help determine the proper amount of coverage.
After the proper death benefit is determined, our goal is to simply find the best plan and price available in the marketplace.
Problems if a Key Person Dies without Coverage:
- Loss of revenue and sales
- Customers leave and go to competitors
- Inadequate cash to make payroll resulting in employee turnover
- Loans or mortgages may be called by the bank
Key Man Life Insurance Provides the Solution:
- The death benefit will provides liquid cash to makeup for lost revenue and sales
- The death benefit can be used to train a replacement key employee
- The death benefit can pay or payoff loans or mortgages
Example: Hugh is a successful executive at his manufacturing company. In order to assure the continued success of the company, a $1,000,000 life insurance policy is purchased based on his economic value to the business.
In the event of the Hugh’s death, the Key Person policy is activated and the $1,000,000 insurance policy is used to find a replacement and make up for lost revenue.The beneficiary of the insurance would be his company.
Types of Key Man Life Insurance Coverage
Key person coverage can be purchased by your business as either term life insurance or permanent life insurance.
A term policy offers the advantage of lower premiums for funding a key man policy. Key person life insurance is often written as a term life insurance for a period of 10, 20, or even 30 years.
Some firms also elect more expensive permanent life insurance coverage, such as universal life and whole life. These polices grow a cash value within the policy, and allow the company to retain ownership of these funds which can be accessed in the future.
Both term and permanent policies are seen as a business asset, and can enhance your company’s creditworthiness for commercial borrowing.
The premiums paid to the insurance company for key man coverage are typically a non-deductible but, the death benefits paid to the company are not taxable.
How to Qualify for Key Person Life Insurance
The premiums you will pay for key person life insurance are based on many factors like height, weight, medical background, and family history.
The life insurance application process will require you to provide your medical background to a nurse when she comes out to do your insurance examination.
The results of your medical exam are then forwarded to the home office for review by the insurance company’s underwriters.The underwriting process normally takes 3-4 weeks from the time you take your examination.
The results of the medical testing can also be used concurrently with business owners needing an additional policy for buy-sell life insurance coverage.
Our goal is to find the best life insurance policy for your company’s key person life insurance coverage. “Instant Life Insurance Quotes” is easy method to compare affordable term and permanent life insurance quotes in minutes. If you need help determining the best option for your business, please do not hesitate to call us at 1-877-249-1358.