Most companies, particularly small and startup business, rely their success exclusively on the talent and skills of number of individuals. Whether it’s an ability to produce sales, encourage clients, calculate finances, and established relationships with others, these people are the key foundation of a great company. Without these people, a business will struggle or even die.
If you have a small business, whether you’re selling instruments or creating music, you also certainly have key people whom you depend on to make your operations successful. But the question is, do you know what to do in case one of these people is suddenly unable to perform his duties? Probably not. If you’re a business owner, you should know the importance of including insurance policies as part of your business, particularly of key man insurance, as these policies will be your primary line of defense in case things go out of hand.
What is key man insurance?
Key man insurance, or also known as key person insurance, is a type of life insurance policy that financially protect a business from the effects of prolonged illness or even death of important employees. While the insurance is unable to provide an equally capable key person, it is capable of providing cash and other benefits that can help the company recover and find a replacement for the previous key employee.
The primary purpose of the key man insurance is to help businesses survive should the employee, who makes the business work, passes away, gets sick, or becomes disabled.
How does key man insurance work?
As with any other insurance, you have to purchase the policy, choose the one to be insured, and pay premiums for this type of insurance. If that insured person suddenly gets sick or unexpectedly dies, your company will receive benefits that can be used to:
- Find, hire, and train a replacement employee
- Pay off any debt or settle any deal with other businesses
- Acquire more loans to help your business grow and expand
- Reassure clients, customers, and investors that your business will continue running
- Or if necessary, close the company in an orderly way
Who can be a key person?
The key person can be anyone who is directly associated with your business and whose loss can lead to failure of your operations. For instance, the key person could be your executive officer, manager, head of sales, or director.
Do you really need key man insurance?
The simplest way to answer this question is to observe your business. Look and find out if the loss of one key person can have serious impact to your operations. If your answer is yes, then you probably need key man insurance.
Key man insurance is designed to help entrepreneurs and businessmen save what they have. Most families rely on their business alone as their primary source of income. If your business is truly important to you, and this is the only one that keeps you and your family alive, then you would want to have it insured. Getting insurance will not just provide you financial security, but will also help your employees get a stable source of funding.
Before you purchase this type of policy, though, you would want to familiarize yourself first with the policy and consult with an expert to understand it better and know what to do in case you need a keyman business protection help.