If you are operating a small business, you are likely relying on a small staff to get the job done.
Many employees in small firms have to wear many hats and if one of them or an owner should die, the business could suffer greatly from that sudden loss of talent. If you don't have "key man" or "key person" insurance that setback could be devastating to the viability of your operations as it will provide you with extra funding that you would need while recovering from the loss.
Key man insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business--the ones whose absence would sink the company. You need key man insurance on those people.
Key man insurance basics
Before purchasing coverage give some thought into the effects of possibly losing certain partners or employees on your company.
Your company would take out life insurance on the key employees, pay the premiums and designate itself as the beneficiary of the policy. If that person unexpectedly dies, your company receives the claim payout.
This payout would essentially allow your business to stay afloat as you recover from the sudden loss of that employee or partner without whom it will be difficult to keep the business operating in the short term.
Your company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner.
In other words, in the aftermath of this tragedy, the insurance would give you more options than immediate bankruptcy.
Determining whom to cover
Ask yourself: Who is irreplaceable in the short term?
For most small firms that would be the owner, who likely wears many hats including bookkeeping, management of day-to-day operations and handling important clients. If the business loses someone doing so much, operations would likely grind to a halt.
In many small businesses, it is the founder who holds the company together вЂ” he may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much stops.
Determining amount of coverage
An AssuredPartners Agency
In February 2020, Molyneaux Insurance joined AssuredPartners, the 11th largest insurance brokerage in the U.S. This partnership provides us access to additional capital and a national footprint that enables us to continue to negotiate the most favorable coverage terms and conditions for our clients, and allows us to provide an even broader spectrum of risk management support services.