Not all life insurance plans have equal coverage. Perhaps, you might already know about the term and permanent life insurance.
But, there are other types of life insurance policies such as the key man or key person plans. These life security plans help keep businesses running even after the Chief Executive Officer (CEO), president, or other people of authority dies.
What is Key Man Life Insurance?
The key man life insurance policy focuses on a key executive’s life. Other insurance plans might need policyholders to indicate another individual as the beneficiary. But, the key person life insurance means the company as the beneficiary of the plan. Thus, when the executive noted in the policy dies or has a debilitating disease, the insurance company pays the firm with the policy premiums.
How Does Key Man Life Insurance Work?
The company that purchases the key man, woman, or personal life insurance plan registers an executive as the policyholder. If that plan holder dies, the company receives the death benefit. Organizations can use the extra funds to:
- Pay debts
- Distribute cash to investors
- Pay severance to the workforce
- Pay for additional expenses
The cash gained from the key person life insurance plan allows businesses to obtain other options as opposed to filing for immediate bankruptcy.
Things to Consider Before Getting Key Man Life Insurance
Before taking out a key person life insurance, it’s essential to think about certain factors first. These things will help ensure policyholders and beneficiaries that the plan meets the needs of the organization.
These factors to consider include:
- The Type of Insurance
Specific key person life insurance policies may not need the registered executive to die before the beneficiary or company gets the benefit. The firm has options when thinking about the type of key person life insurance to take out.
These choices are:
- Life Cover – The insurance company will pay the beneficiary with a death benefit when the executive dies.
- Trauma Cover – The company can qualify for a claim from trauma coverage if the executive has a health condition listed in the policy. These qualifying health issues may include cancer, heart attack, and stroke.
- Disability Cover – The insurance company will pay the beneficiary when the insurance holder becomes incapacitated.
Innovations in healthcare help prevent business executives from experiencing debilitating health concerns or premature death. But, if these events happen, the firm listed can continue with its operations with the funds from the insurance plan.
- The Amount of Coverage You Need
One way to help companies and policyholders determine the amount of money for the beneficiary to claim in the insurance plan is through the “DIME” method. DIME means:
- D – Debt. Check if the business has loans and other payables to compensate.
- I – Income Replacement. The amount of money needed for the business to maintain operations when the executive dies or becomes disabled.
- M – Mortality. The burial costs.
- E – Education or Everything Else. Life insurance holders might think of the former option if they acquire the plan for personal reasons. The latter choice might be for businesses who need the extra cash from the coverage to pay for any additional company expenses before the business finds a replacement for the lost executive.
Remember, life insurance plans aren’t “one-size-fits-all” policies. Different businesses call for varying financial situations. Small organizations can have different financial needs when compared to large corporations.
Business representatives might need to meet with a reliable insurance agent or broker to know the estimated amount required to place in the plan. The insurance agent will speak with company representatives and executives about their lives.
All people of concern should work together to formulate the right amount of coverage to secure the business and its different financial needs. However, this financial assistance can be anywhere from $500 to $10 million.
- The Person to Become the Policy Holder
The company needs to elect a person to become the key man or woman life insurance plan holder. As mentioned, businesses can take out this plan to cover organization executives. But, the firm’s board of directors should elect to have one of their business partners or investors to become the policyholder.
But, rank might not also play a role in electing an employee to become the policyholder. For example, a member of the workforce might be contributing to the business’ operations for several years despite their company rank to be at a midrange level. Consider electing these individuals if the business finds it too difficult or costly to replace their hard-to-find talents.
- The Right Life Insurance Company
Don’t focus all of the business’ interests in getting the key man life insurance plan. Don’t forget to think about the life insurance company that can offer the organization with proper coverage. Like finding the right key man life insurance policy, there are also factors to consider when choosing a life insurance provider.
Here’s a quick rundown on the things a business needs to think about when searching for a reliable life insurance firm:
- Check the insurance company’s financial health. Established firms in the insurance sector have a better chance of providing benefits to beneficiaries than newly-formed companies.
- Check online reviews. Chances are an insurance company that already has other customers that availed key person insurance policies. Check the Internet for positive and negative feedback for businesses to gauge the credibility of a particular insurance firm.
- Compare prices. Different insurance companies offer varying costs for premiums. Small businesses might be looking for inexpensive key person life insurance plans. But, remember that low-cost premiums don’t always equate to high-quality coverage.
Ask a Reliable Company for More Information About Key Man Life Insurance
Think of these things before your business takes out a key man, woman, or personal life insurance plan. Make sure the organization gains the most benefits from the coverage. Otherwise, opt to look for other life insurance suppliers that can offer you better value for money.
Remember, the key person life insurance coverage should help the company avoid different financial woes.