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Is My Small Business Big Enough For Key Person Insurance?


Any business, large or small, may need key person (key man) insurance. If you are starting with a small business, your focus is likely to be on pressing matters, such as getting your product or service out, hiring the right people, managing your expenses, and paying the bills. Buying key person insurance may not be the most urgent item on your agenda, but it can help save your company from bankruptcy if you face certain tragic situations.

How Do I Know If My Business Needs Key Person Insurance?

Regardless of your company’s size, you may need key person insurance if the success of your business depends on a few key people. Your company may need key person coverage on its founders, owners, individual key employees, or any person who is crucial to the success of the business. Banks and Small Business Administration lenders may require key person insurance as a condition for a loan. This coverage may also be required for mergers and other transactions.

If you or any other person is irreplaceable to your company in the short term, key person insurance may be a wise choice. This type of policy should be purchased on any person whose knowledge, skills, or connections are so necessary that their absence would have a significant effect on or even sink the business. Key person insurance may be essential to protect the future of your company, whether it is small, medium, or large.

How Does Key Person Insurance Work?

Key person insurance is not to be confused with personal life insurance. It does not pay out benefits to the family of the deceased. The company buys a life insurance policy on a key person. The company is the policyholder and the beneficiary in case of the death or disability of the key person. This insurance is designed to help the business survive the loss of a key person who is essential to its success until a replacement can be found to take over those duties. If necessary, the proceeds can be used to settle debts, pay employee severance, and distribute money to investors. It provides an alternative to bankruptcy after the crushing loss of a key person.

How Much Key Person Insurance Will My Business Need?

The amount of key person insurance you need will depend on the type and size of your business and how crucial the key person is to its success. As a general rule, you should shop around for the best available rates and buy as much key man insurance as your company can afford. Term life insurance is available at lower premiums than whole or variable life insurance, which makes it a good choice for a key man policy.

Compare the cost of policies ranging from $100,000 to $1 million. Consider how much your company would need to survive and get back on its feet after the unexpected loss of a key person. Our friendly agent will be happy to assist you with the process and help you find the best quote for the key person insurance to suit your business needs.

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