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Who Should Think About Key Person Life Insurance?

By April 17, 2015June 9th, 2020Other

What would happen if a key executive in your business lost their life tomorrow?

Would your business quickly hire a new person and bounce back from the loss? Or would the death be devastating to your company’s operations?

Key person life insurance is a special type of policy that covers companies in the event of a loss of an executive’s life. This type of policy is often referred to as, “key man insurance,” or “key woman insurance.”

The goal with this type of policy is to protect against your business’s life. Still, the decision is somewhat personal and subjective, so deciding who needs this type of insurance policy can become enormously confusing.

Here are a few rules to help you determine if a key person life insurance policy is important for your business, and who should think about this type of plan.

Solopreneurs

If you operate a business completely on your own, you do not need key life insurance. Instead, you should consider taking out a personal life insurance policy to protect your family members. These are the people who will truly suffer if anything happens to you.

Small and Medium Businesses

Small businesses are especially prone to devastation after the loss of an important player in the company. If one of the following executives were to suddenly pass away, the company would struggle to continue to operate as normal or find an adequate replacement:

  •      Any of the founders (these are the people with the creative visions that started the company)
  •      Owners (these are the people funding the growth of the business)
  •      Right Hand Men (anyone who plays a vital role in keeping the business up and running on a daily basis)

Corporations

Most corporations have internal or corporate insurance policies to cover the company in the event of a significant loss. Still, it can make sense to take out a policy on a few of the top executives that play a consistently important role in the firm’s success.

How Much Do You Need?

Knowing who needs a key person life insurance policy is only half the battle. Knowing how much is also important. This will ensure your business is fully covered in the immediate aftermath of a loss.

The general rule is to get as much as your business can afford. Consider how much you need in the event of a loss. How much does your business need to survive until you can replace the key person you’re insuring? The minimum is $100,000, but that’s usually not enough for most companies. Get quotes for $250,000, $500,000 and $1 million to get a better gauge of how much you can expect to pay each month.

Need help deciding? We’re here for you. Contact McGrath Insurance Group to learn more about which people in your company need this type of coverage and how much you can expect to pay monthly for it.