Key-Person Insurance

PEO Hotaling Insurance Services

Key-person Insurance

Most organizations employ at least one individual who is essential to the company’s success. This person may be a partner, owner, majority stockholder or another individual who is crucial to the business. If this person unexpectedly leaves the organization—due to a death, disability or immediate resignation—it may be hard for the organization to survive. If your organization employs individuals who are vital to its success, key-person life insurance or key-person disability insurance can help protect you from chaos caused by their abrupt absence.

Who Needs Key-person Life or Disability Coverage?

Many organizations can benefit from key-person life or disability coverage, including those that:

• Have employees who would be extremely difficult, time-consuming or expensive to replace, such as central decision makers, chief executives, vital sales managers or employees whose ideas have critical commercial impact
• Employ highly-skilled individuals with unique training
• Would lose considerable business and profit without a certain employee
• Have narrow profit margins and would be financially distressed in the event of a key staff loss
• Need to protect their revenue stream from loss
• Would be devastated if a high revenue-producing client (e.g., actor, writer or other entertainer) died or became disabled and unable to perform

How Does Key-Person Coverage Work?

• Employer purchases life or disability insurance for key individual(s)
• Employer is the beneficiary of the insurance policy and owns the policy. If the key employee dies, the policy pays out to the employer.
• Tax-free dollars from the policy can be put toward finding, hiring and training a replacement employee, compensation for lost business during the transition and/or financing timely business transactions
• The policy can be transferred to a departing key employee as a retirement benefit or to a different key individual upon the retirement of the original key employee
• Can be used to buy out the key employee’s shares or interest in the company
• Premiums are based on several factors, including the key employee’s age, physical conditions, health history and the amount of coverage

Key-person Disability Insurance vs. Key-person Life Insurance

When most business leaders think of purchasing key-person coverage, they turn to life insurance. However, industry leaders point out that the chance of losing a key person to disability is 17 times greater than losing a key person to death, and the costs of hiring a recruiter to replace the key person and training him or her for a short period could be much higher than finding a permanent replacement.

Contact us to learn more about Key-Person Insurance.