When you first start a business, you are usually responsible for everything. You are the accounting department, the HR department, the marketing and sales department, the janitor, and everything in between. Essentially, the business would cease to function and effectively exist without you. As a few people get added to the team, those members can also be incredibly important, their absence would cause the business a tremendous financial setback. These are your “key men” (or women), and this is what a key man policy is designed for.
What is a Key Man Policy?
A Key man policy (also known as keyman or key person insurance) is life insurance on a key employee, partner or proprietor upon whom the success of the business depends. Under the key man policy, the business is the beneficiary. The business selects an insurance policy and puts it on the key individual, pays the premiums, and then collects the payout if the person is no longer able to function in their capacity. In reality, most insurance companies do not offer a policy specifically called a “key man policy.” Instead it is usually just taken in the form of a regular life insurance policy.
Key Man Insurance for Small Businesses
In a small business, the owner is usually the key man or key person. If it is a sole proprietorship or there are no other employees, then key personal insurance is not necessary. Often when small businesses grow to a handful of employees, one or two will be as vital to the business as the owner. They may have unique skills, tacit knowledge, or important connections which increase their value beyond the labor and man hours they provide.
Does Your Company Need a Key Man Policy?
To determine if you need key person insurance, think about the dynamics of your business. If there is one person or a group of persons who your business depends on, that is your key person. If you have a key person, think about how much it would take to cover their absence until you could find someone to replace them. Key man insurance should cover not only death, but also disability insurance, which is actually a more likely scenario.
First To Die Policy
Sometimes a “first to die” policy is an option. For instance if three friends start a software company, a policy could cover the loss of one person, but could be applied to any of the three partners. This would be cheaper than three separate policies on each partner.
If you are unsure if a key man policy might be right for your business, it is worth investigating. To learn more about how you can protect your business or what specifically your insurance policy covers, contact the experienced professionals at TJ Woods Insurance Company, Worcester, MA today. We offer full liability coverage for small businesses and entrepreneurs including key man insurance.
