The 411 On Key Person Insurance For Your Small Business

From marketing and advertising to hiring and training new employees, running a business of any size can be difficult. When running a small business, these tasks are left up to you and a few other key individuals. If you are like most small business owners, you are focused on your business, customers, and clients, but understanding the importance of insurance should also be a priority. This guide will help you understand key person insurance policies and if one is necessary for your small business insurance needs.

The 411 on Key Person Insurance

Before you can determine if you need a key person insurance policy, you need to understand what this policy actually covers.

Basically, key person insurance policies cover a key person in your business. For example, if your small business depends on a particular employee to succeed and this key person passes away, your business could be in financial distress. Therefore, a key person insurance policy may be beneficial.

If you purchase the key person insurance policy, your small business would be the policyowner AND the beneficiary. This means that if or when the insured key person passes away, your business would be paid the death benefit.

Reasons for a Key Person Insurance Policy

Now that you understand the policy, it is important to understand whether your small business would benefit from having this coverage.

If your small business is highly dependent on a particular employee because of their special skills, having a key person policy in place is smart. For example, a key person may be your head mechanic who is the only person capable of working on specific makes/models of vehicles.

If your key person is the one employee who generates the most income for the business, you should consider purchasing a key person insurance policy. This is common for companies that rely on a particular salesperson.

You should also take your business debt into consideration. If you and your small business would struggle to pay this debt if you lose a key person, a key person insurance policy may be a smart investment.

It is important to note that a key person insurance policy is different from a business overhead insurance policy. With a key person policy, the key person is the insured, and your business would be the beneficiary, receiving the death benefits if the key person passes away. With a business overhead policy, you as the business owner would be insured. If you pass away, the business overhead insurance policy would pay the death benefits to the actual business, ensuring that the business has the funds available to cover general business expenses.