Key man insurance is insurance purchased on the life of a key employee or owner of a company. The intent is to cover expenses incurred as a result of the death of the key employee or owner.
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.
Key Man Life Insurance With Unique Benefits
Consider the benefits of this very unique key man life insurance policy that also pays living benefits and that we can offer you.
- Pays a lump sum death benefit.
- Pays up to $25,000 in cash to the policy owner if the insured experiences a critical illness such as a first heart attack or even just a first angioplasty or first bypass surgery, stroke, invasive cancer, etc.
- Pays up to $250,000 in cash to the policy owner if the insured experiences a chronic illness for which they can no longer work but they have not died but home health care, assisted living or nursing home care is required.
- If no benefits are used, provides a refund of 100% of the cost to the policy owner at the end of 20 or 25 years!!
This may be the ideal key man life insurance policy for any employer looking to insure a key person.
What Is The Best Type of Key Man Life Insurance
Term life insurance is generally the best for key man insurance as the insurance may only be required until the retirement of the employee. Occasionally 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 not to say that permanent life insurance cannot be used for key man purposes. Some employers do buy permanent life insurance on key employees so that the employer will receive the insurance in the event of the employees death while still employed or the employee would receive any cash value in the policy upon retirement.
This is a complex subject. The above is intended as a very brief conceptual overview only. You should consult your accountant for assistance in determining potential costs and an experienced insurance broker to help you determine the best policy to cover this need.
Key man insurance is also called Key Person Life Insurance.
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