Key Person Insurance

What is Key Person Insurance?

Key person insurance, also known as key man insurance and keyman insurance, is an important form of business insurance. There is not really a legal definition for “key person insurance” – although in general, it could be considered to be an insurance policy that has been taken out by a business in order to compensate for the financial losses of the business that would happen as a result of death or the incapacity of an important figure within the company. It’s like a form of standard life insurance but for those who are involved in a business arrangement or agreement. However, the term of the policy does not extend beyond the period of the individual’s use to the business.

What Does Key Person Insurance Cover?

Key man insurance policies are generally owned by the business. The aim is to be able to compensate the business for any losses that are incurred with the loss of the individual who would be the key income generator. This would help by assisting in providing business continuity. The key person insurance does not indemnify the actual losses but helps by compensating with a fix monetary sum which should have been specified with the insurance policy when it was created. If businesses have specific needs they will need to discuss those needs with the agent in order to ensure they receive the proper coverage and the proper policies for their needs.

What Are the Cost Expectations for Key Person Insurance?

The costs associated with key person insurance depends on the individual’s role within the business, ultimately. Key person insurance is essentially like a form of life insurance, but it is specifically created for those who are handling business – therefore, some of the traditional prices of life insurance may be applied here, but it can ultimately depend on how much the key person or the business itself was really worth.

What Are the Benefits of Key Person Insurance?

Key person insurance has areas that are considered to be insurable losses. There are four different categories of losses which key person insurance can provide compensation for. The first is for losses that are related to the extended period when the key person is unable to work – which provides temporary personnel and may finance the recruitment and training of a replacement for the key person. The second is that is can provide insurance for anyone who was involved in guaranteeing business loans or banking facilities, which means that the value of the insurance coverage is arranged to be equal to the guarantee. The third option is that the insurance can be used to protect shareholders and partnership interests. Meanwhile, another option is that the insurance can be used to protect profits. This would be seen in offsetting lost income with lost sales, losses from the cancellation of business projects that the key person was involved in, the loss of the opportunity to expand, and other elements that may have been lost with the death of the key person.

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