What Is Key Man Life Insurance?

Key man insurance is like life insurance for a business. If a key person dies or is unable to work due to serious injury or illness, this type of insurance will pay a fixed lump sum amount to the business to cover any losses resulting from the death and the costs of finding a replacement employee. Alternatively, some policies may instead pay a fixed monthly amount to cover any ongoing losses.

Does My Business Need Key Man Insurance?

Key man insurance policies are of most benefit to businesses whose operations rely heavily on one or two staff. If a good proportion of your business revenue relies on the unique talents of one staff member, you might find that taking out key man insurance makes sense. Similarly, if your company’s brand is intricately linked to the reputation of a particular employee, key man insurance could be a worthwhile investment.

Businesses may also take out this type of insurance to protect guarantees made to secure business loans. Many small businesses are financed by business loans guaranteed against the business owner’s personal assets, such as their home or vehicle. If the business owner dies or is unable to work, a key man insurance policy will pay out that guarantee, ensuring the bank doesn’t repossess the secured assets.

What Does Key Man Insurance Cost?

Key man insurance premiums vary depending on the type of policy, nature of the business, and the attributes of the key person insured. Term policies, which provide coverage for a fixed period of time, are cheaper than permanent policies, which end when the insured person dies. Similarly, premiums are higher for those policies that pay out higher benefits.

The cost of key man insurance will also be greater for employees who are older, have pre-existing health conditions, or are more valuable to the company. Industries with riskier working environments, such as construction, will also attract higher premiums.

What Happens if My ‘Key Man’ Leaves the Company?

In days of old, jobs were for life. These days, not so much. Leaving a business in search of a raise or a new challenge is now par for the course. If your insured key man leaves your business, your policy can usually be transferred to that employee’s replacement. Alternatively, you can cancel your policy with no further payments required.

The sudden loss of a key employee can be a devastating blow for your business. To find out how you can protect your business from whatever lies ahead, call ISU Armac Insurance Services today. Our experienced staff can help tailor an insurance solution to your business’s unique needs.