Key Man Insurance: 3 Types to Protect Your Business

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Key Man Insurance

Most businesses have one or two employees who contribute significantly to the overall success of the company.

Often, these employees have specific skills and are almost impossible to replace. If they were suddenly unable to work, the financial repercussions of losing a key person may spell disaster for your business.

Three types of insurance can protect you against the loss of your key people: key man disability insurance, key man life insurance, and business continuation insurance.

Read on to find out which type of cover is best for your business. If you’re still unsure, visit https://www.mykeymaninsurance.com/ to find out more.   

1. Key Man Disability Insurance

Did you know that every employee has a 25% chance of suffering from an injury that will affect their ability to work at some point in their lives?

With odds that high, having a plan in place if your key employee is suddenly unable to work makes a lot of sense.

Although we tend to think that disability insurance is something that only benefits employees, what would happen if your key person was unable to work for a month, a year, or permanently?

Consider this: if a key person becomes disabled and he or she is your best salesperson, clients may take their business elsewhere. And if his or her name is intrinsically tied to your business’ reputation, lenders and investors may feel that their investment is at risk.

Key man disability insurance can help mitigate all these risks by offsetting the financial burden of losing a key employee to disability. The policy is owned by the business, and it is the beneficiary.

In the event of the key person (the insured) becoming disabled due to an illness or accident, the business will receive a payment to replace lost sales, recruit and train a replacement, and keep the company running until the key person recovers.

2. Key Man Life Insurance

A staggering 71% of all businesses are dependent on one or two people to remain profitable. The repercussions of losing a key employee permanently can be devastating to a business. Yet, only 22% of companies have taken out key man life insurance on their key employees.

Ken man life insurance is designed to protect your business in the event that a key employee passes away – key man life policies work similarly to personal life insurance, but they are corporate-owned. 

Like key man disability insurance, the company owns the life policy and the key person is the insured.

Upon the passing of a key employee, the business will receive a death benefit that can be used in several ways – like paying debts and investors, finding and training a replacement, and keeping the company afloat. 

3. Business Continuation Insurance

Another way to protect a business is by purchasing business continuation insurance. Business continuation insurance is similar to key man disability insurance and key man life insurance in that it safeguards a business from the consequences of losing a key employee.

Business continuation insurance covers both the death and disability of key employees. It’s commonly used by companies with more than one owner or partner.

If one partner or owner dies or becomes disabled, this type of insurance facilitates a contingency plan for the company – usually by allowing the remaining partners or owners to purchase the shares of the deceased or disabled partner with the policy benefit. Business continuation insurance also protects the business from disruptions and profit loss when the insured dies or becomes disabled.