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Key man insurance is insurance purchased on the life of an employer or owner of a company. The intent is to cover expenses incurred as a result of the death of a key employee.
Some examples are:
lost sales or revenue
hiring of interim staff until a permanent replacement is found
costs associated with hiring and training a replacement employee.
For example:
$30,000 estimated lost revenue and sales
$75,000 independent contractor costs as a temporary replacement
$100,000 recruiter fees, advertising, and training of new employee
would then suggest that $205,000 of insurance should be purchased on the key employee.
Term life insurance is generally appropriate for key man insurance as the insurance may only be required until the retirement of the employee. Occassionally the insurance policy is provided to the employee upon their retirement at which point they could convert it to permanent insurance (depending upon the policy).
This is a complex subject, the above is intended as a very brief conceptual overview only. You should consult your account for assistance in determining potential costs and an experienced insurance broker to help you determine the best policy to cover this need.
