Key man insurance is a type of insurance policy in which a company insures its most valuable employee who is the backbone of the company and without whom the business might suffer great losses. An unexpected death or a terminal illness of such a valuable employee, who is also termed as the keyman can bring the business to a complete stop. Thus, the company insures the keyman and pays the premium so that if any mishap happens then the company will receive the benefits. They are paid a lump sum amount by the policy to deal with the crisis caused due to the keyman’s absence.
Anybody who plays a very significant role in contributing towards the profits made by an organization and whose absence can cause financial losses to the company, is eligible for keyman insurance. It can be the founder or founders, CEO of a company, project managers, people with specific skills or may be the sales people.
It will cover the terminal illness. Since there is higher chances of an individual to develop a critical illness more than dying, so you can also insure both health and life of the key person. You can choose any of this but the combination of these two policies can give the most comprehensive and cost effective insurance cover to the business. By opting for the combination of two, the company will be paid benefits by the policy not just in case of death, but also if the insured person is diagnosed with health issues like a Parkinson’s, cancer or a cardiac arrest. Even the key person can relax knowing that the company will be compensated, so he can focus on his treatment.
Small companies are very vulnerable to such losses. There can be crisis with investment, or to maintain lines of credit. It can hinder even the normal functioning of the company. Thus, Keyman insurance should be considered by all businesses irrespective of their sizes, in case if they are dependent on an individual for their business’s growth read these Business Tips - The Huffington Post .
How To Utilize These Benefits
The benefits from this keyman insurance policy can be used by the company wherever it is required. This money can also be used to train any replacement of the key person. This money can be used for paying or hiring for emergency cover. The losses that are caused to the profits of a company can be compensated too. If the business had taken a loan that can be paid back using these benefits check out https://www.mykeymaninsurance.com/key-person-cover/. If there is any debt of Investors, suppliers or lenders, it can be cleared by the company.
If the business faces difficulties to raise capitals for their new product, this money can be used to resolve the crisis. Due to absence of key person, lot of business contacts can get lost. This can result into a big loss for the company. This situation can also be taken care by the compensation amount received from the policy. The key person was maybe highly skilled and had detailed knowledge about the business system, but in his absence, the company has to hire someone equally skilled. This requires money too. Thus, the company might want use this money for such expenditures. A key person’s absence can also cause a lot of loss from the customers end. There can be situation where there is absolutely no business without the key person. In such cases, the cash could be used to pay off the creditors. These are some of the scenarios in which the company can utilize the benefits from the keyman insurance to cover the losses caused due to losing the key person see these 9 Tips For Growing A Successful Business - Investopedia .
There are advantages of keyman insurance to the company. Some are the following: If a company buys keyman insurance, then it can claim tax deduction since it pays the premium for the policy and it can be shown as a business expense. This can be really helpful for planning tax by the business. This can help in retaining the key human resources of the business.