Why have key employee life insurance?
What is key employee life insurance? Let’s face it, your employees are your most important asset to your business. Your top salesman could be vital for bringing in new business.
Or perhaps your secretary or administrative assistant is a critical employee to keep your business running smoothly.
Would your business suffer a financial loss or suffer a loss in other ways if a key employee suddenly passed away? If so, you may need key employee life insurance protection.
Key employee life insurance provides the business owner the ability to continue their business uninterrupted. It can provide almost instant cash that allows you to hire a new employee or protect a business from being unable to get a loan.
Does the owner need key employee life insurance?
It’s pretty obvious to most business owners, but others forget that they are the key to the success of their business. If you or one of the owners dies it puts the entire business in flux. And, what is the one biggest need at the time of this flux?
That’s right, cash. Cash helps keep the business stay afloat while determining how to continue to operate the business. If a business owner passes away then cash needs to be available immediately.
Think about, employees still need to get paid. Insurance and other benefits still need to be paid for. Would a bank want to loan money to a business if one of the key owners has passed away.
Perhaps money will be needed to buy-out other partners.
How do you qualify for key employee life insurance?
As with any type of life insurance, the key employee will have to go thru underwriting from an insurance company. Underwriting is the process of determining if you qualify for the coverage.
Things that come into play during underwriting are the person’s age, health, tobacco status, income, occupation, etc.
Typically a life insurance carrier will allow an individual to apply for up to 10-20 times their income. So, if someone has a salary of $100,000 it would be pretty easy to purchase a $1MM life insurance policy.
What type of policy do key employees purchase?
Most key person life insurance policies are level term life policies. Level term life policies are the lowest cost plans. They purchase the largest amount of death benefit for the lowest rate. Level term life policies can typically lock in level rates for periods of 10, 15, 20 or even 30 years.
Since all life insurance carriers look at health and lifestyle differently it is important to pick the correct carrier. One of the best ways to find out which carrier will offer the lowest rate is by using an independent agent.
Independent agents typically represent dozens of carriers. The agent will know also which one might underwrite most favorable for the particular situation you are facing.
As an example, one company may underwrite term life policies better for individuals with a history of cardiovascular disease.
Who is the owner and beneficiary of a key employee life policy?
In most every case, the business will own the policy and the business will be the beneficiary. So, as an example let’s say you have ABC Cleaning Company and they wish to take out a key employee life policy on one of their owners Mr. John Doe.
Mr. Doe would be the insured, ABC Cleaning would own and pay the premiums and ABC Cleaning would receive any benefits when Mr. Doe passes away.
Conclusion-
So, do you need key employee life insurance or do you need to protect your business by purchasing coverage on one or several key employees? You can learn more about life insurance here or for free consultation you can reach us at 1-678-207-8160 or mike@specialriskterm.com
