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Key Person
Life Insurance
Key Man Disability
Insurance
Most companies have at least one employee who is
key to the success of the business. Whether it's
the owner, a partner, a majority stockholder or
someone with a high level of expertise, the loss
or death of that person could mean financial
ruin for the company. Key-person insurance
protects your company's solvency in the event of
losing a key employee or founder. Protecting
your company from such potential disasters not
only makes good business sense, but lenders and
investors also generally require that a business
carries key-person insurance to protect their
loans and investments in the company.
Many insurance companies require a company's
board of directors to pass a resolution
affirming the purpose of the business life
insurance policy. And the key employee must also
be notified about and agree to the purchase of
insurance on his or her life.
The
business typically owns the policy, pays the
premiums and is the beneficiary. Most businesses
purchase key-person insurance as a permanent
life insurance policy; however, term life
insurance may be less expensive and can be
bought to cover the key-person until he or she
retires. The policy can be transferred to the
departing employee as a retirement benefit or to
a different key person upon the retirement of
the original key person.
Source: AllBusiness Newsletter
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