As a small business owner, you know that there are many risks to your business's success. In fact, over 20 percent of small businesses fail in the first two years. The loss of key personnel can cripple a fledgling business. That's why it's essential to have a key person insurance policy in place to protect your business from the financial losses caused by staff departures. Here's what you need to know.
What Is Key Person Insurance?
Key person insurance (sometimes still called key man insurance) is an insurance policy taken out by a company on the life of an employee who is integral to its success. The policy pays out when that employee dies or becomes critically ill and is designed to cover the costs associated with replacing them. It also helps protect against any losses in income or profits that may arise due to their absence. In other words, if you and a partner start a business where one is the primary driver of success, and you depend on them to secure customers, manage relationships, or make key decisions, you should consider key person insurance.
Who Needs Key Person Insurance?
Any business that has a high reliance on one or more key individuals should consider taking out a key person insurance policy. For example, the business could be a small start-up or one with multiple employees, but whose main revenue earner is one specific individual. It could also be companies where one individual plays an especially vital role in decision-making processes, such as those involving strategic direction and/or leadership development.
It should be noted that while a key person insurance policy will not replace the person, it will buy your business some time to restructure itself and re-focus.
When Should You Take Out Key Person Insurance?
Ideally, you should take out key person insurance as soon as possible after realizing someone is integral to your business's success, ensuring maximum protection for your business and minimizing any potential disruption caused by their departure or illness. Additionally, it can provide peace of mind knowing that the business can continue to flourish if something happens to them.
Key person insurance provides vital protection for businesses that rely heavily on particular individuals for their success and growth plans, whether they are owners, senior executives, or other highly valued team members. By taking out this type of business insurance policy, you can ensure that your business will remain protected even if anything happens to those critical personnel members.
Talk to an insurance company to learn more about business insurance.
After we had kids, we realized that we needed to up the ante on our insurance coverage. While we had a policy in place, I knew that we had to do something to make sure that we were protected in any instance, which wasn't the case at the time. I began talking with different brokers about what we could do to improve our coverage, and they had some really great suggestions that seemed to help. This website is here to help other people to know how to purchase insurance, and what kinds of policies would work best for your special family.