A Guide To Key Person Life Insurance
February 17th, 10Anyone who runs a business needs to prepare for every eventuality. Unforeseen events in the business world can prove to be cataclysmic. One possible occurrence that must be considered is that of the death of individuals who are indispensable to your business. People die and business executives are no exception.
Without key figures your business could suffer a potentially devastating loss. Key person life insurance seeks to protect your business interests in the event that someone critical to the success of your business passes away. The person’s role will have to be filled and this may not be able to happen without a large financial cost.
The Price Of Expertise
Some job positions are easy to fill with qualified candidates while others are not. If a person is not going to be easy to replace and if their role was crucial to the business then key person life insurance can help. In the event of the key person’s passing this policy will pay out a predetermined amount to the company. This amount can then be used to hire a replacement.
This is especially important if the person who passed away was an owner. An owner will often contribute a great deal of time, effort, and expertise that others would not be able to contribute. Even if someone else can fill this role then you need to keep in mind that the owner had a great stake in the company’s future and may have gone above and beyond to make the business a success without drawing a full salary. Any replacement, not being an owner, would require a full salary. The money from key person life insurance would help a company afford this new higher salary.
Business Ownership Questions
If the person who passed away had a controlling interest in the business then what will happen to his or her shares when they die? This is a question that you want answered before it happens. If you do not want a business partner’s relatives to inherit the key person’s ownership then a buy sell agreement is necessary.
A buy sell agreement can stipulate that upon a person’s passing that their share of the business will be bought by the company itself. How does key person life insurance fit into this scenario? The money obtained from the key person life insurance can be used to pay for this person’s share to make sure that the company can afford the buyout.
The Specifics Of Key Person Life Insurance
Before anyone passes away, you want to know exactly how the financial implications will be handled. You will want to have a key person life insurance policy in place and you will want to know exactly how the money received from this policy will be used when this key person dies. When you plan all of the details out ahead of time there will be no need to ask how the money will be used or if there will be enough to cover the necessary expenses.
Key person life insurance protects businesses when they lose their key players. You never know when people will die but you can take steps to ensure that businesses live on. Key person life insurance can give you the money to carry on after someone who was an integral part of your business passes away.
