Equifax

Finance Blog

The Key to Key Man Insurance

Written by Linda Rey on January 11, 2012 in Insurance  |   No comments

Unless you’re a sole proprietor, your business probably relies on certain individuals to run it effectively and efficiently. Employees might like to think they are all equally valuable, but certain employees can be more important to a business’s bottom line than others—and without those individuals,…

Unless you’re a sole proprietor, your business probably relies on certain individuals to run it effectively and efficiently. Employees might like to think they are all equally valuable, but certain employees can be more important to a business’s bottom line than others—and without those individuals, the business could suffer. If you are a business owner, you need to evaluate what kind of financial loss would occur if a key employee were to die or become disabled.

In a situation like this, what is known as “key man insurance”—also called “key person coverage,” “key executive coverage,” or “key employee coverage”—can help cover some of the loss. Key man insurance is a life insurance and/or disability insurance policy secured by a business owner for protection in the event of the death or disability of a key employee.

To help determine if you or your business might benefit from key man insurance, ask yourself the following questions:

  • Are your key employees involved in sales, management, or administration?
  • What kind of annual revenue do they generate?
  • How much money would it take to find and train a new person of their caliber?

Benefits of key man insurance

When a key employee, executive, or officer of a company dies or becomes disabled, the business may suffer from the loss of that person’s vital management skills. This could result in a period of lackluster sales and lowered productivity. Key man insurance provides funds to stabilize a company during this transitional period.

Business owners can also use key man insurance to supplement life and disability insurance to protect their business. The business owns and pays for the policy, and it is also the beneficiary, while the employee is the insured. The premium payments are not tax deductible.

Discuss with your agent and your tax advisor the most effective types of life and disability insurance policies based on your business and its relationship with the key employee. The age of your employees and your field of work can affect the strength of the disability policy your business will require.

Your business is your livelihood. Don’t risk the devastating financial ramifications that could happen with the loss of a key employee. Instead, look into spending a small premium for key man insurance that can provide a lump sum of money to help stabilize and save your business if you need it.

READ MORE:
Tips for Documenting Homeowner’s Insurance Claims
Adjusting Your Homeowners Insurance
Avoid Homeowners Insurance Claims While You’re Away from Home
Will Your Policy Protect You from an Uninsured Driver?
How to Handle a Hit-and-Run Car Accident
Health Insurance Discounts for Healthy Lifestyle Habits

Linda Rey is a licensed insurance agent at Rey Insurance with a broad spectrum of expertise in life, accident, health, property and casualty insurance as well as retirement planning and college funding strategies.

Follow Linda on Twitter.

No comments yet


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Insurance Archive

Stay Informed Sign up for our FREE Equifax email Newsletter