What Is Key Person Life Insurance and Why Is It Important?

Key person life insurance, also known as key man insurance, is a specialized type of life insurance policy designed to protect businesses from the financial impact of losing a crucial member of their team.

This individual could be a founder, executive, owner or any employee whose skills, knowledge and contributions are vital to the company’s success.

How Does This Type of Insurance Work?

After a business purchases a life insurance policy on the key person, it pays regular (e.g., monthly) premiums and can establish itself as the policy’s beneficiary. If the key person unexpectedly passes away, the business can submit a claim to its carrier for the death benefit.

This payout can be used to cover various expenses, such as recruiting and training a replacement, offsetting lost revenue, or even paying off debts.

Why is Coverage Important?

A key person life insurance policy can be a necessary investment given the importance that the individual in question may have. Consider the following advantages of carrying suitable coverage:

• Financial stability—The sudden loss of a key person can lead to significant financial strain. The death benefit can provide a monetary cushion, helping the business stay afloat during a challenging transition period.

• Business continuity—Key person insurance may ensure the company can continue operations without severe disruptions. It may buy time for the company to find and train a suitable replacement while maintaining stability and confidence among employees, clients, and investors.

• Employee morale—Knowing that the company has a plan in place for unforeseen events can boost employee morale. It shows that the business values its employees and is prepared to protect their employment futures even in the absence of an important figure.

Key Person Insurance in San Mateo, CA

Contact Silicon Valley Risk & Insurance Services today to learn more about key person coverage or to get a quote.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.