When it comes to insurance and your business, you probably already know that life insurance is what would help protect your family if you passed away.

What happens to your business, however, if your co-founder suddenly passed away? Would your business be able to continue? Especially if you run a small business, you might suddenly find yourself struggling to stay afloat. Chances are, you and your co-founder and other key members of your organization all have specialized knowledge that is required to keep your business running smoothly.

However, there is an insurance solution that you may want to invest in. Key man insurance could help protect your company in the event of a tragedy.

What is key man insurance?

Key man insurance is a type of life insurance. The business takes out a policy on key members of the company, such as the founders. If that person suddenly dies or is put into a critical position where they’re unable to work, the company can receive an insurance payoff. However, the person insured must sign off on the policy.

Unlike typical life insurance, which generally goes to the beneficiaries of a person, the insurance payoff from key man insurance goes to the company. Some types of key man insurance also allow business partners to purchase the shares of the deceased before the shares go to the family. This allows the shares to stay within the business.

Why do businesses need key man insurance?

There are several reasons why businesses need key man insurance. Losing a key member of your team can result in huge financial problems. That key person played a critical role in your organization. Without them, you may find yourself struggling to lead properly or certain parts of your business no longer being successful.

Key man insurance can help cover some of that financial loss. It could be used in a variety of ways, from hiring a new team member to making up a loss of profits as you adjust to new dynamics. In some cases, it can also help you if you have to close your company down. The money can be used to cover closing costs and severance pay.

Who does key man insurance protect?

Key man insurance protects anybody that is essential to the success of your business. It doesn’t necessarily just have to be your founding staff; it could be anybody that contributes to the profitability of your business.

Key man insurance covers people towards the top of your business, such as the founders and your top salesperson. But it could also be used to cover people such as your office manager (since they help keep administrative tasks running smoothly) or your website developer (without them, your website could crash). There is quite a bit of flexibility as to who is protected by key man insurance. The decision as to who to insure depends on the size of your company and your budget.

How much key man insurance should you get?

You should get as much as you can afford. When it comes time to insure, keep in mind that the company will assess the general health of each employee that is being covered. You might discover that the premiums of your key man insurance go up if you have older people working in the company, individuals with health issues, or smokers.

You’ll need to be upfront with any medical problems an employee might have. Some insurance companies will require you to submit a medical background from a doctor for each employee. Most companies will provide an estimated calculation to give you a better sense of how much insurance will cost before you have to commit.

How do you find key man insurance?

To start finding key man insurance, work with an agent. You can look for an agent in your area or use a site such as MyKeyManInsurance.com. An agent will have your company’s best interest in mind and will help you locate plans that could meet your needs. They will compare and contrast different plans for you and advise you on what plan will work for your company. They can also help you determine if you even need key man insurance.

Final thoughts

Key man insurance is just another way you can help protect your company. Many companies don’t even realize they need it until they face an unfortunate loss of an employee. Hopefully, you’ll never need it, but having a policy in place can help keep your company from going under.

Contact us

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+ 020 7112 8844
My Key Finance Limited Registered Office: Rutland House, Baxter Avenue, Southend On Sea, Essex SS26HZ

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