Monday, July 29, 2013

What is key person insurance?

Some of the information in this post was provided by Key Man Insurance.

If you run a business, you know how much you depend on your employees.  If you unexpectedly lost one of your important employees, it could be devastating to your business.  Not only would you have to find, hire, and train a new person for the position, you might also lose a great deal of business in that time.  In the worst case, losing a valued employee unexpectedly could mean the end of your business!

So what should you do to protect yourself and your business from such a calamity?

Consider getting key person insurance.

Key person insurance is defined by Wikipedia as:
Key person insurance... is an important form of business insurance. There is no legal definition for "key person insurance". In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of an important member of the business. To put it simply, Keyman Insurance is a standard life insurance, TPD insurance or trauma insurance policy that is used for business succession or business protection purposes.

Key person insurance can be taken out on any important person in your business, without whom your business would have difficulty running. This could be your main salesperson who creates most of the sales for your company.  It could be a project manager, without whom your business would not be able to complete its task.  It could be an executive or partner in the organization.

Key person insurance is often used in large businesses, but perhaps is even more important for small businesses, since it may be that only one person or a few people know how the business actually works.  If they are no longer working there, the business may cease to function.

The payout for this type of insurance can be used to hire a temporary employee, to find and train a new permanent employee, or to compensate the business for lost income while the position is not filled or the new employee has not yet been trained.  This lifeline can mean the difference between a business being able to continue or it going under.

So if you run a small business and have employees with key responsibilities, and if you think your business would suffer greatly without them, you might want to consider getting key person insurance.  Be sure to get several quotes from companies such as  Be sure to check what each policy will cover and which employees can be covered so that you can compare them evenly. 

(This post may contain affiliate links. Please see my disclosure policy for more information.)


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