Key man insurance is a life insurance policy on the key person of a business – usually the owner or the founder who is responsible for much of the firm’s revenue. Key man insurance works this way: a company purchases a life insurance policy for its key employee, and if that person unexpectedly dies, the company receives the insurance payout. The main purpose of key man insurance is to make the business survive after losing the person crucial to the business. Here are the other reasons why key man insurance is beneficial to your company.
Cover the loss of company profits
Public perception is important for many businesses. Losing a key person of your company can tremendously affect the perception of your company in the public eye. If this happens, company revenue may drop due to loss of sales caused by customers jumping to another ship. There’s also a possibility that important clients will lose their confidence in the company if another person they don’t know well will take over. This could then, negatively affect the value of stock shares. With the help of key man insurance, it will soften the blow of a devastating loss through financial means.
Pay off business debts
If the key man has an outstanding loan or has personally guaranteed loans before he passed away, this could be a problem. However, key man insurance can be used to pay off these debts in order to maintain a good company reputation and credit rating.
Funding for a key man replacement
A key man is crucial for any company as they have the specific knowledge, skills and characteristics to make the business run efficiently. These factors are highly necessary to the operation and practises of a company. If they pass away, their knowledge and expertise will also go with them. With the help of key man insurance policy, it can cover the costs of finding, recruiting, training and employing a replacement for them.
If the key man who dies is an executive, it could possibly mean that they have a financial stake in the company. When they die, their stake is passed onto their family beneficiaries. In some cases, family members are not knowledgeable in handling this situation, and this may possibly result in disaster. The family could also sell the financial stake to an undesirable, which could cause disruption and misalignment. The right insurance policy can then, work to provide funds to facilitate a buyout and maintain the company’s best interests and proper alignment.
With over 12 years’ experience, Heritage Insurance Services was formed by industry specialists to offer everyone free advice on protecting the things most important to them – their family and their business. We aim to offer outstanding value and security to all our customers and continue to grow as a company through recommendations. If you have any enquiries about the insurance we offer, contact us on 02392 000 959 or email us at email@example.com and a member of our experts will be in contact promptly.