Key Man Insurance is of great help to many companies. The main purpose of getting Key Man insurance is to help the company prevent losses and be operational when a key person becomes unavailable to the business. Losing a person who is critical to the business sometimes, even pushes the company to file for Bankruptcy. Key Man Insurance helps companies get financial protection in times of such crisis. There are much more benefits attached to Key Man Insurance on https://www.mykeymaninsurance.com/ like paying the other employees their pay packages if for any reason the business is going to shut down.
Why Key Man Insurance?
The cost of losing a key person in the company can place the business in an insecure state. The company might undergo the following challenges.
Loss the Revenue that was generated by the key employee
Due to the loss of the key employee, the company might need to spend on recruitment and training a new employee to fill that position
There might be disturbances to the existing management structure
The key person might have been the point of contact for important clients, customers, and supplier. Losing the key person means that the business might lose them too.
Get stuck in the current business debts
At these instances, Key Man Insurance provide
The much-needed cash flow to run the business by replacing the revenue lost
Pay for the cost of recruitment and training of new employees
Support in times of structural and management changes
Help in paying the existing debt and loans of the company
Help in providing the cushion during the crisis time of losing key clients, contacts, and customers
Gives an overall secure feeling to the business
Benefits of Key Man Insurance
Key Man Insurance is not a costly affair. It is quite affordable. In addition, premiums are also tax deductible and the benefits we get from Key Man insurance is tax-free. Key Man insurance is also very flexible as there is no need to show any financial status of the company and the company can choose Business Tips Archives - Cascade Business News whom to insure as key persons. It acts as a good will to make the key employees stay with the company. The key person cover can be used as anemployee benefit and thus, the risk of losing the key person to the competitors can be reduced.
Applying for Key Man Insurance
If a company is interested in applying for Key Man Insurance, then the following needs to be done.
The purpose of applying for the key Man Insurance policy must be confirmed after discussing with the board of directors of the company
The employee for whom the key man insurance is taken must be notified about the same and he/she must agree to it
The company is the one that owns the policy and pays the premium. The company is the beneficiary in case of the key person’s death.
Before applying for Key Man insurance, the company must also think about the following things:
Determine the value of the Key Man: Though it is not possible to place a price tag for each key person, the value of their insurance cover can be determined by considering the projects lost with the non-availability of the key person, a number of sales affected and cost of replacing them.
Determine the need for Key Man Insurance: If the company already has a risk management in place and has other sources like credit insurance to handle the loans and debts, then the business might not need Key Man insurance. Hence, it is important to ascertain that.
Determine the way to recover from theloss: There must always be a plan that details the way to continue the operation even when there is a loss. This plan will help determine the need for key man insurance and what needs to be done with the cash-flow that comes from the Key Man insurance.
Determining the Level of Coverage
The company should know well in advance how much to insure. It can be calculated by taking into account
the size of the business and the cost of replacing a key person
the Structure of the business
Regular review of the cover
A Key Person is crucial to the business because without him the company will undergo a reduction in profit and in some cases, might even incur losses. If you are not sure, contact a Key Man Insurance agent who will answer all your questions.