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What is Key Person Insurance?
Key Person Insurance is a life insurance policy that a company purchases on a key executive’s life. The company is the beneficiary of the plan and pays the insurance policy premiums. This type of life insurance is also known as “key man insurance,” “key woman insurance” or “business life insurance.”
- Key Person Insurance is a life insurance policy a corporation buys on the life of its top executives.
- Such insurance is needed if that executive’s death or inability to work would be devastating to the future of the company.
- For small businesses, the key person might be the owner or founder, and in some cases, the only person capable of running the business.
- The company pays for the insurance, pays the premiums and is the policy beneficiary, should the person die or become incapacitated.
WHO SHOULD CONSIDER LIFE INSURANCE?
If you only need insurance for a specific period of time (say, when your kids are growing up or for the length of your mortgage), then consider term. If, however, you need life insurance for as long as you live (for things like burial expenses or income replacement for a spouse), consider permanent coverage.
BENEFITS OF KEY PERSON LIFE INSURANCE
Under a key person life insurance policy, the business owns the policy, pays the premiums and is the beneficiary. If a key person dies, the business then collects a death benefit. That money can be used to help a business replace lost revenue as they search for a replacement.