Key Man Life Insurance? Yeah, I've Heard of It



Insurance to protect the life of a business Why not? Just as the death of a parent can throw a family into financial turmoil, the loss of a crucial member of a business team can put the business in jeopardy. To ensure that they can survive the loss of their most crucial employees, businesses use key man life insurance.

Key employees are those whose rare or unique abilities, knowledge, and business connections make them hard to replace but vital to the ongoing business of the employer. Small- to medium-sized businesses are more likely to depend heavily on certain key employees for continued profitability.

What trials would the loss of a key employee inflict upon your business? Finding and training replacements for highly specialized positions is costly and takes time. Likewise, restructuring the business to work around the loss of a vital employee takes time and money that a many small- to mid-sized businesses haven't got.

Key man life insurance, also called key employee insurance or key person insurance, provides funds in the event that a key employee dies, retires, or otherwise departs.

Cheap key man insurance Any life insurance product can be used by a business to insure its key employees. Term life insurance is the cheapest.

Term insurance provides coverage for a specific time period, usually from 5-30 years. If the insured party expires while the term insurance policy is in force, it pays a death benefit. Otherwise, the policy ends, and the policy owner gets no return. The inclusion of a time limit on term life coverage works well for employment settings: generally, employees are expected to work only a certain number of years before retirement. By selecting a term life policy with a term of coverage that matches the duration of the employee's expected work-life, the employer can pay the lowest premiums possible, for the shortest time possible.

Rolling out benefits In the event that a business intends to provide a retirement plan for its key employee, it may be more cost effective to combine the retirement plan and the key man life insurance into a single entity: cash value life insurance policies provide life coverage, but they also build equity, which makes them a valuable asset.

Upon a key employee's retirement, ownership of the cash value insurance policy can be transferred to him, or the policy can be cashed in-"surrendered," in industry jargon-and the proceeds used to fund the retirement plan.

Cash value insurance products are divided among two categories: whole and universal life insurance. Whole life policies are significantly more expensive, but the rate of growth which their cash value accumulates is guaranteed in the policy. The cash value growth in universal life products depends on the payments that the policyholder makes into the policy, as well as on interest rates which vary, according to the finances of the insurer.

Cash value for added protection Not only does cash value in insurance entail the possibility of using an insurance policy for retirement, it can also protect a business against the loss of a key employee through means other than death. If a key employee retires prematurely or even leaves to work for someone else, the employer is at liberty to liquidate the cash value insurance policy which it held over said employee.

The cash value is certain to fall short of the death benefit which could have been supplied, but it can still provide the funds needed to replace the employee or reorganize the business.
For more information or to purchase life insurance products:

    * Wholesale Insurance
    * Life Insurance on My Terms

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