Key man insurance is insurance purchased on the life of an employee or owner of a company. The intent is to cover expenses incurred as a result of the death of a key employee.
Some examples are:
•lost sales or revenue
•hiring of interim staff until a permanent replacement is found
•costs associated with hiring and training a replacement employee.
•$30,000 estimated lost revenue and sales
•$75,000 independent contractor costs as a temporary replacement
•$100,000 recruiter fees, advertising, and training of new employee
would then suggest that $205,000 of insurance should be purchased on the key employee.
Term life insurance is generally appropriate for key man insurance as the insurance may only be required until the retirement of the employee. Occassionally the insurance policy is provided to the employee upon their retirement at which point they could convert it to permanent insurance (depending upon the policy).
This is a complex subject, the above is intended as a very brief conceptual overview only. You should consult your account for assistance in determining potential costs and an experienced insurance broker to help you determine the best policy to cover this need.
Key man insurance is also called “Key Man Life Insurance” and “Key Person Life Insurance”.
Get an instant online key person life insurance quote here from over 40 life insurance companies.
Key Man Insurance
Key man insurance is a sub-type of life insurance that is aimed at the business world, where one person’s skills and abilities can make an enormous financial difference. If a large portion of your business hinges on a few key people, you should give some thought to key man insurance.
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North American Key Person Brochure
Who Needs It?
Key man insurance is meant to cover the company’s losses in the event of the death of a key employee. That employee may be a particularly capable sales person, a manager, or the company owner, the underlying assumption is that the company will suffer greatly should that person pass away.
What Is It?
Key man insurance is generally a term life insurance policy, with the length term being the time until that employee retires. The company pays the premiums on the policy and receives the death benefits if the employee unexpectedly dies. If the employee retires, the company may choose to also surrender the insurance contract, giving the employee the chance to convert the policy to a permanent one.
How Much to Cover For?
Losing a key employee can harm your business in multiple ways. Your key man insurance policy must provide enough coverage to account for all costs associated with such a loss. This loss is expressed not just in immediate loss of profits or revenue; the company must also bear the costs of hiring temporary replacement staff, of conducting the search for a suitable replacement, and the new employee’s training.
It is vital for your company’s financial health that you select the best insurance policy for your specific case. The above description is meant as a brief outline only, and does not reflect the full complexity of selecting the best insurance policy. If you wish to receive additional information, please follow this link for a key man insurance quote customized for your needs.
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