How Key Person Insurance Can Safeguard the Life of Your Business

The majority of us are accustomed with how the life insurance policy of a household’s income producer helps out in the event of his/her premature death. However, the fact that life insurance can play an identical role, in the form of Key person insurance, for business isn’t so well known.

Key person insurance can be demarcated as an insurance policy where the proposer & the premium payer is the employer, the life to be insured is that of the same employer’s key personnel and the benefit, in the event of a claim, goes to the employer. The ‘keyman’ here can be any personnel, having a special skill set or big responsibilities, which contributes dramatically to the profits of that organization.

Keyman includes a key-woman also and there can be multiple keyman in an organization. Key person insurance can also be employed to cover the partners in a partners in a partnership company.

What are the basic eligibilities to avail key person insurance?

Basic conditions needed to be fulfilled to purchase a key man insurance from an insurance firm include:

• The ‘key-man’ must hold less than 51 percent of the corporation’s shares.
• The total number of shares of the corporation held by the Keyman & his household together should be less than 70 percent of the corporation’s shares.
• Some evidence of the important role that the keyman plays in the business of the corporation is needed.
  
  
   
   
  What are the advantages of key person insurance to the organization?

• It safeguards against business risk in case of accidental demise of the keyman
  
  
• Interruption of lines of business credit because of the demise of the Keyman can sternly affect the business. This is where the insurance money can aid as an assurance of loan repayment in the event of demise of the key person.
  
  
• It aids in keeping the market price of the organization’s shares stable in the event of demise of the key person. If the key person passes away the price of the organisation’s shares is expected to come down but if the investors know that any monetary loss can be compensated through the insurance, they may not start offloading the shares instantly.
  
  
• It safeguards the valuation of the company. For instance, in the event of the corporation being put up for sale, potential buyers are expected to place a higher value to the organization if they know that it has a financial back-up in the form of insurance to meet the cost of replacement of its keyman.
  
  
  

To know more about the taxation aspects of key person insurance, feel free to get in touch with the team of Haunn Landers & Co. We are dedicated to aid our clients make smart decisions surrounding their wealth.