Key person life insurance is a type of life insurance usually meant to provide cover for the most important person in a business organization. A key person might be a business owner, partner, or key employees whose death might severely affect the operations of a business. Unlike regular life insurance, key person life insurance policy lists the business as the beneficiary.
How does a key person life insurance plan works?
To thoroughly explain this question, we will use your business as an illustration. First, your business buys life insurance on its important workers, which could be you and one other individual. The business also pays its premiums and is named as the beneficiary of the plan. Now, if you or that important employee dies unexpectedly, your life insurance company will pay death benefit to your business. Your company can then use the death benefit to keep up with the day-to-day running of its affairs.
Who needs key person life insurance?
To determine who is eligible for this type of life insurance, you should look at your company. Single out the person who is irreplaceable, for at least a short while. Also, choose the person whose death can bring your business to a halt.
How much key person life insurance is required?
The answer depends solely on the structure of your business. But to be on the safe side, it is prudent to buy as much life insurance as your business can afford. How much money will your business need to survive the death of its most important worker? Estimate the amount and get a policy that will match your needs. In addition, we recommend that you do not confine yourself to one life insurance company. Rather, compare rates from different insurance agents before buying a key person life insurance policy.