Do You Need Key Man Insurance?

Most small businesses will come to rely upon certain employees to do very important jobs. These are jobs that are critical to the success of the business and these employees are very good at what they do. They are not easily replaced. They may be your General Manager, Project Manager, Bookkeeper, Sales Manager, or any number of other jobs that may be specific to what your business does. If something unforeseen were to happen to them it could throw your company into chaos. Sales could be lost, employees may not get paid, and projects not get finished on time. Any number of things could suddenly go wrong with your company. It can get very expensive very quickly to fix. This is why key man insurance exists!

Key man insurance, key person insurance or key employee insurance as it is sometimes referred to is something every business needs to have. So what exactly does it do for you? It is a life insurance policy that covers key employees within your small business in case of death or critical illness. It can cover anyone you deem would cause financial hardships to your business were they to be permanently incapacitated. And remember this includes the owner as well. The way key man insurance works is very simple. A company purchases a life insurance policy on the key employee, pays the premiums and is the beneficiary of the policy.

Companies purchase these policies because if something were to happen to that key employee the company will need to have the funds available to protect it from the effects that employees death or incapacitation would cause. And they will have to pay to hire a replacement for the employee that was lost. Depending on what their job was this can get very expensive.

For many small businesses the loss of just one key employee could mean the death of it. It is already a tragic situation when a company loses an employee but that loss may also cause hardship for many others as well. Key man insurance gives the company some options other than immediate bankruptcy. It can buy you the time you need to reorganize your situation. You might get the chance to replace that employee before it's too late for your business. Often the key person may also be its owner. In a small company that can cause the immediate death of that company. The purpose of key man insurance is to help the company survive the blow of losing the person who makes the business work. The money the business receives can allow the time needed for a new owner to get the house in order.

Of course the business may still not survive the death of a key employee but by covering your most valuable employees with key man insurance you put it in a position to have a fighting chance. And sometimes that's all you need.