Key person life insurance is a contract that offers financial protection or reimbursement from losses on an owner, partner or key employee; whom a business depends on for continued successful operation. With the typical personal life plan, a family member usually receives the benefit. In this type of plan, the company would be the one to acquire the benefits.

A key person can be anyone that is essential in the daily operations of a business. Their absence may result to devastating losses such as financial troubles, interruptions or failure. For large companies; an executive, principal shareholder, a particularly effective salesperson can be considered as a key person. On the other hand, the key person in small businesses is usually the owner, founder, partner or a key employee.

With a key person life insurance person plan, a company buys a policy for their key employees, pays the premium and becomes the beneficiary. If an unexpected death of the key person occurs, the company will obtain the pay off. This type of coverage is important since the loss of a key person in a small business may lead to the immediate decline of that business. The main purpose of this is to assist a company in overcoming the negative consequences brought about by the death of someone who helped make the business function.

A company uses its proceeds for certain expenses while finding the replacement for a key person. Small companies may use the money to buy the shares in the business from the family of the deceased employee. It can also be used to pay off debts, allocate money to investors, pay separation fees to employees or close the business down in an organized way. In some cases, this policy provides companies some alternatives other than claiming bankruptcy.

If a company is planning to take out a business loan, it is recommended that they also buy a key man plan. Many lenders may require it wherein either the company or the lender acts as the beneficiary. This guarantees that the loan can be paid off even though the key employee dies or the company’s assets get liquidated.

To determine the need for key person life insurance, it is important to assess the business and to think about who is irreplaceable in the short term. For instance, small businesses consider the owner as someone who holds the company together. His function may be managing employees, handling important customers or keeping the books. If the owner is gone, the business would practically be brought to a halt.

The cost of availing this type of plan depends on the business. However, generally businesses must acquire as much key person insurance as they can afford. The sum insured can range from thousands to millions of dollars. A company should think over how much money is needed to survive until another key person serves as a worthy replacement. One should buy a policy that suits the company’s budget and is capable of dealing with short-term financial needs in case of tragedy.

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Are you looking for more information regarding life insurance ? Visit http://www.termlifeinsurance.com/ today!

Author Bio: Are you looking for more information regarding life insurance ? Visit http://www.termlifeinsurance.com/ today!

Category: Finances
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