The United States has 30.7 million small businesses, which account for 99.9% of all businesses in the U.S. A small business has less than 500 employees. Keeping these businesses operational is important considering they create about 1.5 million new jobs every year.
One of the most important factors in making sure a business stays operational is taking steps to accommodate the loss of a key employee, owner, or partner. Key person insurance serves this purpose. Key man, key person, or keyman insurance are all terms used for this special type of life insurance.
If you own a small business or are self-employed, you may be wondering what this insurance is and if your business really needs to purchase it. We are going to share who needs key person insurance, how it works, and who the owner and beneficiary are.
What Is Key Person Insurance?
In a small business, the owner is crucial to the everyday operation of the business. There may also be other key employees the business relies on heavily. If any of these people die or become disabled it will have a tremendous impact on the business.
The impact is so great that businesses are often unable to continue and close. Key person insurance coverage is designed to provide financial assistance to the business, helping it survive this unexpected impact.
When you consider what business insurance you need, purchasing a key person life insurance policy needs to be at the top of your list. Owners, partners, employees who are significant in operating the business, or even top salespeople need key person insurance.
The business purchases and is the owner of the policy. The company pays the premiums because they are who will benefit from the payout if the employee dies or becomes disabled.
How Does Key Person Insurance Work?
The company is the beneficiary of a key person life insurance policy. The business can use the insurance money where they need it most. This may be paying business expenses, hiring a replacement person, and paying off company debt.
If a determination is made to close the business, insurance proceeds the company receives may fund severance pay to employees and finance the closing of the business. The beauty of keyman insurance is that it provides those in the business with options that prevent bankruptcy.
Who Is Key Person Insurance For?
Do not confuse key person insurance with personal life insurance. You need to purchase personal life insurance to provide for your spouse and children in the event of your death. Key person insurance keeps your business operating in the event of your demise.
Your family members will not personally benefit from key person insurance. The benefits your family receives are if the insurance prevents the business from closing. Your family may benefit from the business serving them as a viable source of income.
Does My Business Need Key Man Insurance?
If you are operating a business as a sole proprietor, partnership, or own a company in which the unexpected death of specific key employees would create a financial hardship on the business, you need key person insurance. We invite you to learn more about our business insurance plans.
Hummel Group has a focus on making sure all insurance policies we sell are the best option for the client. We have experience in working with every size of business from sole proprietorships to large corporations. We will analyze your situation and advise you who we recommend within your business you should cover with key person insurance.
You are welcome to request an insurance quote by calling (330) 684-5922 or request a quote online. Don't wait until it is too late, call today!