What is Key Person Insurance and why you may need it
Definition:
A Key Person Insurance is any insurance policy purchased by a business to compensate itself for the financial losses which would arise from the unfortunate events of death or extended incapacity (such as: being diagnosed with one of the critical illnesses specified on the contract, becoming terminally ill etc.) of an important member of the business. This insurance can be a standard life insurance, Total and Permanent Disability Insurance (TPD insurance) or trauma insurance policy to be used for business succession or business continuity purposes. Key Person Insurance, sometimes named as Business Executive insurance, is no special plan, but is just an application of life insurance …show more content…
If the business’ reputation and/or financial sustainability are critically associated to the key employees’ name, reputation or unique skills, then the key employee's death could eventually end the business too. It protects against this business risk in the event of unfortunate death of the key person.
2. Similarly, if the death or critical and/or terminal illness of a key employee (maybe a top salesperson) could quickly cripple the company financially, key person insurance should be able to provide some cushion of protection from the immediate impact. This is especially useful for small scale businesses.
3. The premiums paid by the business for the company-owned key person policies aren't a deductible business expense. But, upon meeting the stated conditions of the Pension Protection Act of 2006, the death benefit amount generally passes to the beneficiary (the business) as tax-free.
4. Disruption of flow of business credit caused by the death of the Key person can have serious downfall on the business. With Key Person Insurance in place, the insurance money can become a guarantee of loan repayment after the death of the Key …show more content…
Also, the morale of the Key employee gets boosted as the insurance makes him feel important. The increased sense of belonging heightens productivity and retention of the efficient employee(s).
6. Having this insurance in place also helps to keep the market price of the business' shares stable post the death of the Key person. If the investors are well informed that any financial loss owing to the death of the Key person could be made up by using the insurance proceeds, they might not want to offload the shares
Definition:
A Key Person Insurance is any insurance policy purchased by a business to compensate itself for the financial losses which would arise from the unfortunate events of death or extended incapacity (such as: being diagnosed with one of the critical illnesses specified on the contract, becoming terminally ill etc.) of an important member of the business. This insurance can be a standard life insurance, Total and Permanent Disability Insurance (TPD insurance) or trauma insurance policy to be used for business succession or business continuity purposes. Key Person Insurance, sometimes named as Business Executive insurance, is no special plan, but is just an application of life insurance …show more content…
If the business’ reputation and/or financial sustainability are critically associated to the key employees’ name, reputation or unique skills, then the key employee's death could eventually end the business too. It protects against this business risk in the event of unfortunate death of the key person.
2. Similarly, if the death or critical and/or terminal illness of a key employee (maybe a top salesperson) could quickly cripple the company financially, key person insurance should be able to provide some cushion of protection from the immediate impact. This is especially useful for small scale businesses.
3. The premiums paid by the business for the company-owned key person policies aren't a deductible business expense. But, upon meeting the stated conditions of the Pension Protection Act of 2006, the death benefit amount generally passes to the beneficiary (the business) as tax-free.
4. Disruption of flow of business credit caused by the death of the Key person can have serious downfall on the business. With Key Person Insurance in place, the insurance money can become a guarantee of loan repayment after the death of the Key …show more content…
Also, the morale of the Key employee gets boosted as the insurance makes him feel important. The increased sense of belonging heightens productivity and retention of the efficient employee(s).
6. Having this insurance in place also helps to keep the market price of the business' shares stable post the death of the Key person. If the investors are well informed that any financial loss owing to the death of the Key person could be made up by using the insurance proceeds, they might not want to offload the shares