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Key Person Insurance

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Key Person Insurance (aka Key Man or Key Woman Insurance) is a life insurance or disability insurance policy that a company purchases on a key executive's life. The company is the beneficiary of the insurance policy and pays the premiums to the benefit of the members. This policy is also used to keep business leadership running smoothly in the event of an unexpected death or disability of a key person. Policies tend to be comprehensive but simple to understand and invest into. The vast majority of small-business owners think about and insure against the loss of its property and equipment. Yet, protection from the loss a key executive may be far more important. While you can't prevent the sudden loss of a key contributor to a business, you can minimize the impact felt by disability or death—with key person insurance.

 

Who are your key employee(s)?

  • Impact to sales/profitability

  • Relationship managers/Customer relations

  • Impact to operations/work flow

Costs associated with losing a key person

  • Contractual benefits due to employment contracts

  • Management and staff disruption

  • Disruption of revenue stream

  • Loss of skill and experience

  • Loss of reputation and recruiting power

 

Benefits of Key Person Insurance:

KPI protects your organization due to the loss of a key employee due to death, disability or departure. It provides the financial cushion to help you recruit and replace those key employees. In addition, it increases retention by providing competitive benefits to reward and retain key employees.

  • Key employees recognize it’s a valuable benefit

  • Contributions not allowed due to IRS limitations, in qualified plans, may be restored

  • Company incentive contributions can help recruit, reward and retain key employees

  • Assets accumulated to finance the plan remain as an asset of the company

 

 

key person insurance chart

key person insurance death chart

 

 

 

 

 

 

 

 

 

 

 

There's a number of considerations as well such as:

  • Deferred income tax deduction

  • Potential charge to earnings on assets used to finance the plan

  • May have administrative service fees

  • May require human resource time to communicate the plan benefits to participants


The next step is determining the value of the key employee.  There are many ways to determine someone’s value. One of the tools we use to help with this looks at four factors and takes it a step further for business owners to also assess the buy/sell and debt protection needs.

We work with over 110 of the nation's top carriers to find the right insurance for your company, no matter what type of liability needs you have.

 

Some of the most common insurance coverages that go well with key person insurance are:

  • Professional Liability - Any working professional with a skill-set that could slip one day should consider E&O insurance.

  • Directors and Officers Liability - Keep the top executives happy with an insurance shield against professional risks.

  • Workers Compensation - Protect your employees with a comprehensive work comp solution that can include a professional safety plan, recommended doctors, or anything else you need for peace of mind.

  

We have the experience to tailor your insurance policy to what you need and the markets to ensure your costs won't hinder your company's growth.

Check out our blog for more business risk information here or fill out the short form below to have an expert get in touch.

 

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Alliance Insurance Group
7910 Ralston Rd., Ste 7
Arvada, CO 80002

Phone: (303) 279-9700
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