After reading an article recently, entitled, “Have You Insured Your Company’s Most Valuable Resource?” by Dana Sydney of Dayton & Sydney, LLC, an insurance advisor, I would say that there are several good reasons for your company to carry insurance on your key employees and yourself. Insuring a key person can spell the difference between the failure and survival of a business.
Here are some of the benefits of providing life insurance on the unexpected loss of a key person in a company and a few things to keep in mind when purchasing “Key Person Insurance”. Key person life insurance can help a company survive the operational loss and financial strain that follows the death of a key employee or owner:
Key person life insurance policy is owned by the business, it pays the premiums, and it is the beneficiary. The premiums vary based on the age, physical condition and health history of the insured. The need for key person insurance depends on your company’s structure, its continuation plans and the amount of financial hardship without that key person. Not all businesses need key person insurance. In large companies, there may be less likelihood that a single individual is indispensable to a company’s continued success. In one-person firms, the business is not likely to survive without the principal, no matter how much money is available.
There are several valuation techniques that can be used to determine how much key person insurance is appropriate. No one method is best. Buying key person life insurance can be a relatively small expense and one that hopefully you will never have to collect on. But failure to invest in a key person policy and then have that person die; can be an enormous expense. Your company may be able to absorb the small expenses, but what about those big expenses created by the loss of a key person in your company?