Key employee insurance, also referred to as key person insurance, is life and/or disability insurance purchased by a business on the life of a top employee or executive to protect the company from the disability or death of the key person. This often overlooked insurance can be critical to the continued success of a small business that depends upon a few key people for its ultimate success.
What is Key Employee Life Insurance?
Key employee or key man life insurance is nothing more than a life insurance policy taken out on the life of a key person to safeguard the company from the employee’s demise. It is NOT to be confused with personal life insurance to cover an employee’s family, but is for the express benefit of the business. In other words, the company recognizes the risk associated with the death of a top employee and buys a life insurance policy that will pay proceeds to the company in the unfortunate event that the employee dies. The company pays the premiums, owns the policy and is the beneficiary of the policy. For more specific details, see Key Employee Life Insurance Explained.
What is Key Employee Disability Insurance?
Key employee disability insurance is a unique type of disability insurance policy that a company can purchase on the life of an individual to protect the business from a disabling accident or injury to the key person. Like key man life insurance, key person disability insurance is designed to pay benefits to the business not the individual in the even the key man is disabled. The company owns the policy, pays the premiums and is the beneficiary of the benefit payments. For more specific information, see Key Employee Disability Insurance Explained.
Summary
If you own a business that relies exclusively on the production and performance of one or two people for the vast majority of your company’s earnings, there are two types of “Key Employee” insurance that you definitely should consider. Key man life insurance, purchased on the life or lives of your key people will guaranteed immediate funds to your company if one of these employees passes away. Likewise, a key person disability insurance policy covers the threat of a disabling illness or accident that renders a key employee unable to work. The incorporation of these policies is an important risk management strategy to insure that your business can continue effective operations if a key employee is lost due to disability or death.