What is Key Man Life Insurance (also known as Key Person Life Insurance)?
Most companies employ at least one person who represents the key to the success of the business (often the owner of the company). The loss or death of that person could deal a real blow to the company and its ability to generate revenues to survive – someone else must be hired to carry on the same tasks performed earlier, and that expense, in addition to the loss of revenue, must be reconciled. Many owners therefore insist on buying life insurance to minimize the risk, and many lenders require that the business carry key person life insurance to protect their loans and investments into the company.
How does Key Man Life Insurance work?
The key person must agree to the purchase of insurance on his/her life. The business typically owns the policy, pays the premiums and remains the beneficiary. The policy can be transferred to the employee if he/she leaves the company, or can be retained if the company is sold – the new purchasers may want to keep the insurance in recognition of the outstanding loans that may be secured to buy the interests of the insured.
Are there other reasons to have Key Man Life Insurance?
Key person life insurance policies are often used as well to support a buy-sell agreement between business partners. The proceeds can be structured to purchase the deceased person’s shares or interests in the company. The agreement mandates that the deceased executive’s estate sell its stock to the remaining partners/shareholders, and that the partners/shareholders purchase the interest for a specified price. The price should help establish the value of the business for estate planning purposes and calculating the estate tax upon death.
How can I get an Instant Quote for Key Man Life Insurance?
CLICK HERE to get an instant quote.
You can also give us a call at 1-888-972-0024 from 9 AM to 9 PM Eastern Standard Time to discuss your options in more detail or send us an e-mail by CLICKING HERE. We look forward to hearing from you!