Understanding Keyman Insurance: What You Need to Know

Critical employees discuss Keyman insurance benefits—Holloway Benefit Concepts

If you or an essential individual in your company passed away today, would your business be compromised?

It is not always pleasant to think about, but the future of your company is worth protecting. Keyman insurance (aka Key Man insurance) provides a financial cushion if a critical individual passes away. Find out more about Keyman insurance, and if it is right for you:

What is Keyman Insurance?

Keyman insurance is most often introduced and utilized as a life insurance policy a company purchases on the life of an owner, executive, top salesperson, or other critical individuals. This type of insurance is intended to help a business recover from the death of a crucial employee. The company typically pays the premiums, and the business, rather than an individual, is usually the beneficiary of the policy. The policy provides security and allows businesses to replace the individual or make decisions about the company’s future.

How does it work?

If the person’s death negatively impacts the company’s future, keyman insurance protects the business from various risks and provides money for several things, including:

  • Recruiting, hiring, and training a replacement.
  • Business debt repayment and employee severance benefits if the company shuts down.
  • Offsetting lost income or sales.

While the company is usually the owner and beneficiary of the policy, a business must notify the person they want to insure and obtain permission. A keyman policy can also be transferred to the insured person and used as an employee benefit. It can be a tool to recruit or retain highly skilled and trained individuals. If used as an employee benefit, the policy can be transferred to the key person after a certain period employed with the company, upon retirement, or when a desired level of performance is met.

Is Keyman Insurance Right for Your Business?

Keyman insurance offers many benefits, but not every company is a good fit. There are several factors to consider. For example, small businesses are often dependent on one or two people who might be difficult to replace quickly. This would be an ideal fit for keyman insurance. However, a sole proprietor, where no one else is involved with the business, would benefit from a standard life insurance policy.

Identifying critical employees is an important first step in determining if keyman insurance is right for your company. An employee might be vital to the future of your business if:

  • Their death would impact the company’s credit score or business loan repayment.
  • Projects or performance are directly related to the person’s knowledge or skills.
  • The brand is linked to the person’s name or reputation.

Keyman insurance is usually purchased as a form of financial protection but can be required for certain loans or investments as it is considered a business asset that increases creditworthiness. In this case, it assures lenders or investors that a company will not go bankrupt if a critical employee passes away. There are certainly other benefits to keyman insurance geared more toward recruitment and retention than business protecting. These can include but are not limited to individual or classed-out disability programs, additional group life insurance packages, and long-term care programs. Like most benefits, program types will vary from company to company based on daily operations and structure.

Holloway Benefit Concepts Can Help

Keyman insurance offers diverse benefits, various protection options and is customizable to meet your unique business needs. Holloway Benefit Concepts can help you find the right plan at the right price. Our knowledgeable team provides creative solutions to keep your business going strong, no matter what life throws your way.

Take the necessary steps to preserve your business and your future in the event of a critical employee death. Contact us to learn more about our services and schedule a consultation.

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