Everything You Need To Know About Key Man Insurance
The other names of key man insurance are key person insurance or key employee insurance. It is a type of life insurance that a company purchases for the employees. The company is the owner of the policy and it has to pay the premium for the employees. The company will receive the Insurance amount if an employee dies unexpectedly. The main of this insurance is to protect the company from the loss, which it has to incur due to the death of the employee.
Usage of key man insurance
Here are some of the usages of key man insurance.
Replacement of the dead employee
The dead employee has to be replaced by another one and for these expenditures on recruitment has to be done. The employee has to be trained and much amount has to be incurred in this process.
Losses that company suffers due to the death
There can be one or more major things that the employee may have been handling during his lifetime and after his sudden death, the relationship with the clients and customers may disrupt. This insurance covers all such losses related to sales, marketing, and other things handled by that employee.
Purchasing the shares of the shareholder
If the dead employee has purchased the shares of the company, then those shares need to be repurchased by the company, which is not possible with the cash and funds available with the company. In such a case, the company needs the key man insurance to purchase the shares.
Guarantee related to the loans
Loans taken by a company are guaranteed by the owner of the company or the partners. In the case of the death of a partner, the key man insurance will help in paying out the debt. There will be no burden on the pocket if the deceased partner in paying the debt of the company purchased this insurance. After the payment of the loan, the company can get a chance of borrowing more money on the basis of the loan guarantee. The banks will also give preference to key man insurance as they consider as an asset.
Liquidation of the business
There are chances that continuing the business is not possible with the death of the keyman. In such a case, the debts of the company can be paid with the help of key man insurance. Money can be returned to the investors and employees can also be well paid. In this way, the business can be closed easily and in an orderly manner.
Who should purchase keyman insurance?
Keyman insurance is a good option for those companies who may face a huge loss if a partner or the owner of the company faces sudden death. Such businesses can face huge devastation and they may also need to be closed. A key man is considered as that person whose immediate replacement is not possible and the company may have to employ and train a person to that level which can be very expensive.
If a company has many partners or it works on the basis of shareholders, that company should also purchase this insurance. It will help the other partners to buy the shares of the deceased partner. Keyman insurance will also help the company to pay the debts.
Keyman insurance is very beneficial as the death of a deceased person can cause a huge loss for the company. The company has to be closed or the debts have to be paid, or other expenses have to be paid. In such a case, the insurance will help the company to pay for all the expenses.