Insuring Your Most Valuable Assets – Your Key Employees
There are a number of types of business insurance that you likely already have, but have you considered insuring your most valuable assets? These are your key employees. Key person insurance is a type of insurance that helps a business get by in the event that something happens to a key employee or even the business owner. Anybody who brings a special skill set to the company that may be difficult to replace is a person that can potentially be covered by key person insurance.
Key person insurance can come in the form of both life insurance and disability insurance. This way you can protect your business if the employee dies or is injured.
For life insurance, there are several options, including: term life, whole life, and variable life. With term life key person insurance, you pay a monthly or yearly premium and are covered for the term of the policy, which is usually around 35 years. With a whole life policy, there is no term limitation, but these policies are more expensive. However, they can be borrowed against as the payments go into a savings account. A variable life policy is similar, but premiums are put into riskier investment accounts.
Payouts from these key person policies can be used to help make up for revenue generated by the key employee, costs of recruiting/training replacements, or tend to other expenses directly related to the person’s death.
Death isn’t the only thing that can happen to a key employee that renders them unable to contribute to the business as they were previously. Injuries and illnesses that impact the person’s wellbeing may also have a direct effect on revenue. That’s where disability key person insurance becomes important.
As Farm Bureau explains, “Usually, these policies define disability as the inability of the employee to perform his or her normal job duties due to injury or illness. As with life insurance, your business buys a disability insurance policy on the employee, pays the premiums, and is named as the beneficiary. When the employee is disabled, the insurance coverage pays monthly disability benefits to your business. These benefits can equal a certain percentage of the key person’s monthly salary, up to either a maximum monthly limit or 100 percent of that salary. The benefits may be used to pay the operating expenses of the business and to cover the expense of finding a temporary or permanent replacement for the key employee.”
It is worth determining how much certain employees in your business impact the company’s ability to function and produce revenue. Ask yourself what would happen if something happened to them. For those particularly difficult to replace, it might be time to look into key person insurance. Talk to your insurance provider to determine which policies are right for your company.