Key-Person
Insurance
Key person insurance
is simply life insurance on the key person in
a business. In a small business, this is usually
the owner, the founders or perhaps a key employee
or two. These are the people who are crucial to
a business--the ones whose absence would sink
the company. You need keyperson insurance on those
people. Key person term life works by a company
purchasing a life insurance policy on a key employee,
pays the premiums and is the beneficiary of the
policy. If that person unexpectedly dies, the
company receives the insurance payoff. The purpose
of key man insurance is to help the company survive
the blow of losing the person who makes the business
work.
The company can use the
insurance proceeds for expenses until it can find
a replacement person, or, if necessary, pay off
debts, distribute money to investors, pay severance
to employees and close the business down in an
orderly manner. In a tragic situation, key person
insurance gives the company some options other
than immediate bankruptcy.
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