A key person is anyone your business cannot operate without, or whose loss would cause a significant financial hardship. It could be a business partner, leading salesperson, production manager—or even yourself.
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What is key person life insurance?
Key person insurance - or key employee insurance - is a tool that business owners can use to help overcome the loss of an indispensable executive or employee. With this coverage in place, business owners will receive a lump-sum insurance payment that they can use to keep their operation running if an insured employee passes away.
Here’s how key person insurance works
Key person insurance is a life insurance policy that is purchased by a business and insures the life of a top employee. (That’s why it’s also sometimes called key employee life insurance). If the covered employee passes away, the death benefit will be paid directly to the business—where it can be used to pay recruiting costs, overhead, or any other operating expenses.
Why it’s important for businesses to have this coverage
If your business relies heavily on one or two employees, key person insurance can be an invaluable source of financial protection. This is especially true if your company operates on a slim margin or does not have a significant capital reserve, since the death benefit can help sustain your business until your key employee has been replaced.
Where you can get key person insurance
Since key person insurance is a life insurance policy, you can get this coverage from most major insurance providers. Given the unique needs of business owners, however, you may want to consider working with a company that offers an entire suite of small-business solutions. That way, you can evaluate all the resources available and make sure this is the best fit for your particular needs.
How much key person insurance costs
Like all life insurance policies, the cost of key person insurance will depend greatly on the type of coverage selected (term vs. whole life) and the age/health of the person being covered. A New York Life financial professional can help outline your exact costs.
Frequently asked questions
The amount of coverage you need depends on a number of factors: the size of your business, the amount of capital available, and the relative value your key person contributes, just to name a few. A New York Life financial professional will be happy to help assess your needs and guide you to the appropriate solution.
Even though the policy covers a specific individual, the business itself pays the premiums and owns the policy.
In most cases, it is not. While the premiums are paid pretax, the proceeds (death benefit) are tax free to the beneficiary—which in this case is the business.
New York Life gives your business more than just insurance coverage.
New York Life provides professional support whenever you or your employees need it, backed by a company with over 175 years of experience, decades of proven financial strength and a track record of helping small-businesses succeed.1 Connect with a New York Life financial professional today to learn more about our small-business insurance solutions.
Note, neither New York Life Insurance Company (NY, NY) nor its agents provide tax legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions..
1Source: https://www.newyorklife.com/about/our-strength/what-rating-agencies-say.