Planning ahead is vital for your business. One type of coverage you don’t want to overlook is key person life insurance. If anything happened to your senior staff, the financial losses for your business could be very real. Help safeguard the longevity of your business by contacting us today to learn more about your options.
Insuring key personnel with life insurance is a common practice in business, particularly for individuals whose roles are critical to the success and stability of the company. Here’s an overview of why companies do this and how it works:
Why Insure Key Personnel?
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Risk Mitigation: Key personnel often have unique skills, knowledge, or experience that are difficult to replace. If such a person were to die unexpectedly, it could cause significant disruption to the company’s operations and finances. Life insurance helps mitigate this risk by providing a financial cushion to the company in the event of the person’s death.
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Retention and Recruitment: Offering life insurance coverage as part of a benefits package can be attractive to key employees. It can serve as a tool for retention and recruitment, demonstrating the company’s commitment to the well-being of its key personnel and their families.
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Business Continuity: Life insurance proceeds can be used to cover expenses such as hiring and training replacements, paying off debts, or even buying out the deceased person’s shares if they are a business owner. This helps ensure business continuity during a challenging time.
How It Works:
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Identifying Key Personnel: The first step is identifying who qualifies as key personnel within the organization. These individuals typically include top executives, key managers, technical experts, and other employees whose contributions are essential to the company’s success.
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Selecting Coverage Amount: Once key personnel are identified, the company determines the appropriate amount of coverage needed for each individual. This amount is usually based on factors such as the person’s salary, their role within the company, the financial impact of their loss, and any outstanding debts or obligations the company would need to cover.
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Policy Ownership and Beneficiary Designation: The company purchases life insurance policies on the lives of the key personnel. The company is usually both the owner and beneficiary of the policies. This means that in the event of the insured person’s death, the company receives the insurance proceeds.
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Premium Payments: The company pays the premiums for the life insurance policies. These premiums are typically considered a business expense and may be tax-deductible, depending on the jurisdiction and the specific circumstances of the policy.
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Policy Types: There are various types of life insurance policies that companies can use to insure key personnel, including term life insurance, whole life insurance, and universal life insurance. The choice of policy type depends on factors such as budget, coverage needs, and investment objectives.
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Regular Reviews and Updates: It’s important for companies to regularly review their key person life insurance coverage to ensure it remains adequate and up-to-date. As the company grows or key personnel’s roles change, adjustments may be necessary to maintain adequate coverage.
In summary, insuring key personnel with life insurance is a prudent risk management strategy that helps protect businesses from the financial consequences of losing key individuals. By providing financial security to the company in the event of the insured person’s death, key person life insurance helps ensure business continuity and stability.
