Thanks to Kristin Colella of RSL Media for the opportunity to be a resource for her article on Mutualofomaha.com on “Does Your Business Need Key Person Coverage”. Kristin takes a look at the impact to a business of a key person becoming disabled or dying and how insurance can be used to protect against that loss financially. When a key person is suddenly removed from company operations for an unspecified period of time or permanently, it will have an impact on the company financially. Key Person Life and Key Person Disability Insurance is used to provide cash inflow when such an event occurs.
The complete article “Does Your Business Need Key Person Coverage” can be read by clicking on the article name. Article excepts including my comments follow below:
Keep in mind that not just any employee can be considered a key person. “The insurance company is going to want to know how that person is essential to the business, and will ask for financials and a job description to prove it,” says chartered life underwriter Tony Steuer, founder of the website The Insurance Literacy Institute. You will also need the key employee’s consent to take out the coverage.
In some cases, a business owner or partner can be insured as a key person. “Oftentimes, owners are the key people because a lot of the business is dependent on them or their connections,” Steuer says.
When figuring out how many years of term coverage to purchase, consider how long that key person will be essential to your business. “Are they a family friend who’s never going to leave the business, or are they somebody who may move on if they don’t become CEO in 10 years?” says Steuer. “You may also want to think about what type of salary or compensation might be needed to hire somebody with comparable skills, and then factor in the cost to hire a search firm.”
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