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What Is Key Person Insurance in Life Insurance?
<lingo>When a business has employees that are very valuable to them, so much so that the company would struggle to survive if that individual died, key person insurance may be a valuable investment. This is a type of life insurance policy taken out by the company. The company is also the beneficiary on the policy, which means they receive the funds from the policy if the person dies while it is in place. This type of policy is designed for business owners, executives, or others too valuable to lose.</lingo>
Key Person Insurance Clearly and Briefly Explained
Key person insurance is a type of life insurance a business takes out on an important individual within the company. The individual does not pay the premiums, but the business does. Additionally, the company receives the death benefit should the individual die while the policy remains in place.
The goal of key person life insurance is to provide the company with financial protection should an important person die. The funds of the policy apply onto to the named individual. If that individual dies while the policy is in place, it works to provide a sum of money to the business. The business can then use these funds for a variety of needs, such as maintaining operations until a new professional can be found to replace the existing one. It can also be used to help with the recruitment of a new employee to fill the role.
<twitter>Key person insurance is a type of life insurance a business takes out on an important individual within the company. The individual does not pay the premiums, but the business does.</twitter>
Key person insurance is very important for companies who have specific individuals who have unique talents or insight into business operations. It can apply to one or more of the company’s founders, for example. Executives, especially upper management, may also apply here.
It is also important to know that key person insurance does not provide any type of death benefit to the family of the covered individual. The policy is not a part of that individual’s benefits or estate and therefore, is inaccessible to the family at the time of death. A typical life insurance policy can be purchased by the individual or the company for that need.
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