What Is Key Person Life Insurance?
Key Person life insurance is a great way to make sure your business can survive if its key employee suddenly passes away. A good example of Key Person life insurance is a head chef at a restaurant – if that head chef passed away the restaurant may need a lump sum of money to cover the decrease in revenue, and bridge the gap until they can find/train a new chef to replace them.
Who Needs Key Person Life Insurance?
Businesses with key employees. Aside from restaurants, there are numerous occupations or industries that should seriously consider purchasing key person life insurance on their key employees. Another example is employees who do quoting for businesses – there are typically a small number of employees who do all quoting for a business, and if they suddenly passed away the company’s ability to continue quoting would be seriously compromised.
Another example is a farm – sometimes a farm has one key employee who overseas numerous aspects of the entire operation, and if that employee passed away there would be a big shoe to fill – life insurance proceeds can help the business breath and give it some time to find the right person to replace them.
How Much Coverage?
In most cases you can purchase up to 10 times the employees annual salary as a coverage amount. So for example, if your employee makes $50,000/year, you can purchase up to $500,000 in life insurance on their life.
Beneficiary and Payor
Key Person Life Insurance is paid for by the corporation, and the corporation is also the beneficiary. If the employee passes away, the corporation will receive the lump sum payout tax.