Key Person Life Insurance policy covers the life of the key person in a particular organization. Once that person passes away or becomes disabled, the insurance agency will pay the premium to the beneficiary company so it can survive the transition and conduct business as usual.
This kind of insurance is necessary, especially for small-scale businesses, and that might not be able to deal with the repercussions of losing key business personnel. Generally speaking, any company that has valuable employees can benefit hugely from a Key Person Term Life Insurance Policy.
Before you take out a Key Person Term Life Insurance Policy, there are a couple of things that must be considered. These can help you determine if the policy you’re planning to take out will meet your organization’s unique circumstances and needs. These considerations are the following:
Kind of Insurance
Know that your business has numerous options relating to the kind of insurance that you should take out for the business. Among these insurance types are the following:
- Disability cover
- Trauma cover
- Life cover
In Disability cover, the premium will be paid the moment the insured individual becomes incapacitated. In the case of trauma cover, the insurance premium shall be paid in the event that the insured individual gets diagnosed with specific trauma conditions provided in the insurance policy. Among these conditions are cancer, stroke, heart attack, and so on. In the case of life cover, the insurance premium shall be paid to the named beneficiary in the event that the insured individual dies.
Knowing the appropriate insurance plan to subscribe to can help you plan better for your company.
Amount of Insurance Coverage
When planning to subscribe to an insurance policy, it’s also very important to check the amount of coverage. The coverage usually runs between $500,000 to $10 million or more, though the final and actual amount will largely depend on some factors like business size and particulars of the insured individual.
Key Person Covered
Naturally, you’ll have to choose a person to nominate. Generally, the Key Person Term Life Insurance Policy covers company partners and executives since they are those who play a vital role in the organization. Then again, if your business has a different key employee that will be costly or difficult to replace, choosing them will be wise.
Capital Purpose or Revenue
The insurance policy also needs to be tied to capital or revenue purposes. The latter purpose is for the protection of the company against revenue loss as a consequence of the death, permanent disability, or critical illness of the insured individual. The former purpose is for the business to be paid the premium to help it settle loans, other payables, and even finance the business should it suffer when partners are forced out of business.
Tax Considerations
Take note that when the policy’s main purpose is the protection of revenue, the premium paid by the insurance company will be tax-deductible. However, if it’s taken for capital purposes, it won’t be tax-deductible.
If you need help in deciding which type of insurance you require, there are a lot of professional experts composed of seasoned insurance agents in this kind of field to make sure that you get expert advice that will be beneficial for your business.
