Inside Key Person Life Insurance

What if your business encountered a sudden loss of a key executive and it had a large negative effect on the company’s operations? Key person, or key staff, life insurance essentially pays the company to buy time to find a new person or execute other strategies to keep the business afloat.

The key person may be the owner, the founders or perhaps a key employee or two. If an individual’s absence would sink the company, that would qualify for this policy and life insurance is definitely worth considering.

Key Staff Life Insurance: How it Works

For this life insurance policy, a company purchases the coverage on its key employee(s)’s plan and is the beneficiary of the policy. If death does occur, the company receives the insurance payoff. These funds can be extremely helpful to pay for expenses until a replacement person is found, pay off debts, distribute money to investors, pay severance to employees, or close the business down in an orderly manner. In a tragic situation, key person life insurance offers options other than immediate bankruptcy.

Who does the bookkeeping and manages employees? It is important to determine who is irreparable to the business. How much coverage to purchase will depend on your business, but in general, think of how much money your company would need to survive until it could replace the key person, come up to speed and get the business back on its feet. Buy a policy that fits into your budget and will address your short-term cash needs if tragedy strikes. 

Categories of Loss to Protect Against

  • Losses related to an extended period when a key person is unable to work, but has not died.
  • Profits: offsetting lost income from lost sales, losses resulting from the delay or cancellation of any business project in which a key person was involved.
  • Shareholders or partnership interests; this coverage may enable shareholder or partnership interests to be purchased by existing shareholders or partners.
  • Individuals involved in guaranteeing business loans or banking facilities. The value of insurance coverage is arranged to equal the value of the guarantee.

Control Your Risk

Just as important as protecting your business against the risk of fire, theft, natural disaster, legal liability, and automobile accidents, is safeguarding it in the event of the death or disability of a business owner, partner or key employee. Protect your business from the financial consequences of events that could disrupt operations, reduce profits, or even cause the business to go bankrupt with key person life insurance. Key person life insurance helps businesses continue their success by reducing the operational uncertainties in the event that those with a prudent role passes away.

About Arroyo Insurance Services

Arroyo Insurance Services was officially established in 1986, but we have roots dating back to before 1950. One of California’s leading client-oriented and independently owned agencies, we have over 140 employees with a combined experience of over 450 years, spread across 11 locations. We are committed to providing the best insurance and risk management services at the most competitive premiums, and backing it with hands-on service tailored to our customers’ needs. For more information on how we can mitigate your risks, contact us today at (877) 220-4769.