Business Insurance Costs: How Much Does a Key Man Policy Cost?

Whether you are planning to start a business or already have a successful business, one of the main concerns is business insurance costs. Every business has its unique needs, making it difficult to estimate the cost without contacting an insurance agent for a quote. 

One area often overlooked by business owners is the benefit of key man insurance. This insurance policy is crucial to the financial security of the business.  

Key man insurance is life insurance owned and paid for by the business. The business is also the beneficiary. The purpose of the insurance is to keep the business running in the event a key person dies or becomes disabled.

Read on for everything you need to know about the costs of adding this highly important insurance to your business budget.

Coverage for Business Expenses

When you or a key employee dies or suffers a disability, the insurance policy benefits your business with a payout that helps cover profit loss, debts, and the cost of hiring a replacement person. In the event a decision is made to close the business, benefits may fund employees' severance pay and business closing costs.

Do not confuse key person insurance with life insurance. On personal life insurance, you designate your spouse or children as the beneficiary upon your death. The only benefit key insurance is to your family is if it keeps a family business running to provide them a source of income.

Key Man Policy Costs

The cost of your key man insurance depends on various factors regarding your company. The main factor is the type of policy and amount of coverage you purchase.

The least costly and most basic form of insurance pays benefits only if the insured person dies. Businesses can choose broader-ranging policies that will pay benefits if the insured becomes severely ill or disabled. Additional coverage increases the cost.

Permanent or Term

You have the option of purchasing a term key person insurance policy or a permanent policy. A term policy only pays if the death or disability happens during the time designated in the policy, usually 10-30 years.

At the end of the term, you will have the option to renew. You also have the option to upgrade from a term policy to a permanent policy.

Coverage under a permanent policy does not expire. These policies usually cost 5-15 times more than term life insurance.  

Coverage Limit

The coverage limit designates the maximum benefit the insurance company will pay if the key person dies or incurs serious injury or illness. The higher the benefit, the higher the premium.

Determining the amount of coverage necessary depends on the size of your business and the key person's contribution to your bottom line. Ask your insurance agent for recommendations on policy coverage. Compare prices for amounts such as $250,000, $500,000, $1 million, etc.

Age, Gender, and Health of Key Person

This is life insurance, and cost variants depend on a person’s age and medical conditions. Cancer and heart disease are two important factors. Insuring older persons or those with health issues increases premiums.

Company Size, Type, and Structure

Your agent will consider the key person’s contributions to business operations and the type of business you operate. Premiums are higher for employees whose loss will have a significant impact. They will also consider if the industry has a higher risk of disability or premature death.

Determining Your Business Insurance Costs

Now you know what determines your business insurance costs for key person life insurance coverage. The important thing is not to overlook this important factor for providing security to your business.

We at Hummel Group are committed to making sure you purchase the appropriate insurance for your company. Contact us today for a free quote at (800) 860-1060.