Key Person (KP) Insurance can be critical for businesses of all sizes. It offers coverage that safeguards businesses from the economic risks associated with the disability or death of a key executive, manager, or partner that is considered essential to the business.
Don’t leave your future up to chance. Get a quote for Key Person Life & Disability Insurance now, from HCP National, a certified minority-woman-owned insurance broker. Alternatively, read on to discover KP coverage works and why your organization should consider it.
Businesses purchase Key Person Insurance (KPI) or a key person policy to protect against financial losses if a key executive, manager, partner, or owner becomes disabled or passes away.
In the event of an unexpected death or disability, KPI can pay the business owner(s) a lump sum as the policy’s death or disability benefit. This benefit helps cover any immediate costs associated with finding a replacement, and other expenses related to lost income from losing key personnel.
KP insurance can also protect other shareholders’ or partners’ interests by funding buy-sell agreements, enabling the remaining shareholders or partners to purchase the disabled or deceased partner’s or shareholder’s interests.
Key person life insurance (also referred to as key man life insurance) is a type of term life insurance policy. It pays an agreed-upon amount to surviving the business partner(s) and/or shareholder(s) if an indispensable executive, partner, co-owner, or other essential person dies unexpectedly.
Death benefits typically cover any costs associated with finding a replacement for the deceased, such as recruitment fees or advertising costs. The death benefit also compensates for any potential decreases in revenue due to lost sales, delays, and disruptions.
In some cases, the death of a key person can mean the end of the business. The payout from a KP life insurance policy can help pay shareholders, fund severance packages, pay off any debt, and provide necessary funds for closure.
Key man life insurance can be term or permanent insurance:
At HCP National, we can structure all kinds of Key Man Life Policies from Term Key Man Life Insurance to Permanent Key Man Life. As a broker, we shop the major insurance companies to find your company the best options available. We can provide policies with limits as high as $65,000,000 or as low as $200,000. Coverage can be a flat amount to a multiple of a key person’s annual salary.
As the death of a company leader can impact the corporation’s bottom line, so can a disability. Both have the same result: the key person cannot perform his/her duties for the corporation due to a disability.
Key man disability insurance can provide a lump sum payment, or a monthly check, after the waiting period or disability period has been met. The payout helps cover any costs associated with lost income and finding a new hire.
Many corporations buy only key person life insurance, but the odds of death – depending on the key person’s age – are, in most cases, less likely than disability. The odds of disability for a male aged 45 is as high as 1 in 3.
Types of disabilities covered can range from total disability, where the insured cannot work at all, to partial disability, which allows them to perform some job duties.
Two essential terms you must understand when purchasing KP disability insurance are:
HCP National can help your company obtain significant limits for a key person disability policy.
A key person is typically someone who plays an essential or indispensable role in the success of your business. This could be a CEO, a key executive, a top-level financial professional, or other executive-level employee whose knowledge and expertise are vital for the company’s operations.
Highly skilled and experienced sales professionals often build solid interpersonal relationships with potential vendors and customers. Their departure could also result in a significant financial loss for the company.
The same applies to technical personnel, including scientists, or software engineers, who are not easily replaceable, due to their advanced skills and years of experience.
Small business owners can also purchase KP insurance to cover themselves, especially if their presence is essential for the business’s day-to-day operations.
The amount of key man insurance coverage your business needs depends on several factors. The most important is the value of the key person to your business. Additionally, you should consider the following factors when determining the amount of KP coverage you need:
By accurately assessing the risk of losing a key employee, businesses can better plan for their financial future. To illustrate this point, consider a company that must replace an employee earning $60,000 annually.
According to research by the Society for Human Resource Management (SHRM), it could cost six to nine months’ worth of salary – or anywhere from $30,000 to $45,000 – to secure a suitable replacement. This demonstrates how quickly costs can add up and significantly affect your business’s bottom line.
Calculating the financial impact of a key employee’s death or disability is essential to determine how much KP coverage you need.
HCP National works with leading insurance companies to provide tailored solutions and competitive premiums so you get the best coverage at an affordable price. Our key person insurance policies can have limits as high as $65 million or as low as $200,000 – allowing you to meet almost any budget requirement.
Additionally, coverage can be a flat amount to a multiple of a key person’s annual salary – giving you flexibility and peace of mind in equal measures.
Several factors determine the cost of KP insurance, including:
Key person insurance provides financial protection against the death or disability of a covered key employee, manager, or partner. If one of these individuals dies or becomes disabled, KP insurance can cover the following:
A buy-sell agreement is a legally binding contract that states the conditions under which one partner can purchase another partner’s share of the company.
In regards to death or disability, this arrangement can ensure that if something happens to one of the partners, the remaining partner(s) would be financially protected.
Partners often use KP life insurance to fund these buy/sell agreements. The policy pays out a lump sum after an insured person’s death, and this money provides funds for buying back shares from deceased owners’ family members (or other beneficiaries).
Protecting your business from the unexpected is essential. At HCP, we specialize in helping businesses like yours select the best key person insurance plan to suit their needs.
With over 25 years of experience, and certification as a WBENC and MBE brokerage, we have the expertise to guide you through this process and help secure the coverage your business requires.
NOTE: THE ABOVE IS A GENERAL DISCUSSION ABOUT HOW KEY PERSON COVERAGE MAY WORK. YOUR INSURANCE POLICY, AND ALL ADDENDA, ARE THE ONLY AUTHORITY OF HOW YOUR COVERAGE WORKS. DO NOT RELY ON THIS ARTICLE AS AN EXPLANATION OF YOUR COVERAGE. HAVE YOUR ATTORNEY REVIEW YOUR ENTIRE POLICY WITH YOU TO DETERMINE WHAT IS AND ISN’T COVERED
Since 1994 – HCP’s top priority is finding clients the best possible coverage and terms at the lowest possible cost. HCP is a certified diverse (MBE & WBENC) insurance brokerage.